Problem 9-3 On January 1, 2015, Evers Company purchased the following two machin
ID: 2567360 • Letter: P
Question
Problem 9-3 On January 1, 2015, Evers Company purchased the following two machines for use in its production process Machine A: The cash price of this machine was $38,800. Related expenditures included: sales ta $3,500, shipping costs $120 insurance during shipping $70 installation and testing costs100 and S 140 of oil and I bricants to be used with the Machine B: The recorded cost of this machine was $200,000. Evers estimates that the useful life of the machine is 4 years with a $11,400 salvage value remaining at the end of that time period. machinery during its first year of operations. Evers estimates that the useful life of the machine is 5 years with a $5,100 salvage value remaining at the end of that time period. Assume that the straight-line method of depreciation is used. Your answer is correct. Prepare the following for Machine A. (Round answers to 0 decimal places, e.g. 2,125. If no entry is required, select "No entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented whern amount Is entered. Do not indent manually.) 1. The journal entry to record its purchase on January 1, 2015, 2. The journal entry to record annual depreciation at December 31, 2015 No. Account Titdes and 1. Equipment Debit Credit 42590 Cash 42590 2 Depreciation Expe 7498 ccumulated D 7498 SHOW LIST OF ACCOUNTS SHOW SOLUTION SHOW ANSWER LINK TO TEXT Your answer is partially correct. Try again Calculate the amount of depreciation expense that Evers should record for Machine B each year of its useful life under the following assumptions. (Round final answers to O decimal places, e.g. 2,125) (1) Evers uses the straight-line method of depreciation. (2) Evers uses the declining-balance method. The rate used is twice the straight-line rate. (3) Evers uses the units-of activity method and estimates that the useful lfe of the machine is 145,800 units. Actual usage is as follows: 2015, S2,200 units; 2016, 40,400 units; 2017, 30, 100 units; 2018, 23,100 units Straight-line methord 47150 50000 52116 47150 12500 29799 47150 47150 100000 25000 Units of-activity method 67338 38829 SHOW LIST OF ACCOUNTS LINK TO TEXTExplanation / Answer
Answer
1
Cash Price
38800
2
Sales Tax
3500
3
Shipping Cost
120
4
Insurance
70
5
Installation Costs
100
6
Oil etc
Not considered
A=1+2+3+4+5+6
Cost to be capitalized
42590
B
Salvage Value
5100
C=A-B
Depreciable base
37490
D
Life (in years)
5
E=C/D
Annual SLM Depreciation
7498
WORKING----------
---STRAIGHT LINE DEPRECIATION
A
Cost
200000
B
Salvage Value
11400
C=A-B
Depreciable base
188600
D
Life (in years)
4
E=C/D
SLM Annual Depreciation
47150
--- DOUBLE DECLIING METHOD (Twice the SLM)
A
Cost
200000
B
Salvage Value
11400
C=A-B
Depreciable base
188600
D
Life (in years)
4
E=C/D
SLM Annual Depreciation
47150
F=(E/C) x100
Rate of SLM
25%
G= F x2
Hence, Rate for Double Declining Depreciation
50%
Opening Book Value
Depreciation Rate
Depreciation expense
Accumulated Depreciation
Cost
Closing Book Value
2015
200000
50%
100000
100000
200000
100000
2016
100000
50%
50000
150000
200000
50000
2017
50000
50%
25000
175000
200000
25000
2018
25000
[Balancing figure to reach $11400 Salvage Value] 13600
188600
200000
11400
In the year 2018, Book value (opening) comes out to be $25000. Applying the 50% rate, the depreciation expense would be $12500. But the depreciation of $12500 would make the closing book value (for 2018) equal to $12500. However, the closing book value for 2018 needs to be $11400 (which is Salvage value at the end of useful life). Hence, instead of $12500, $13600 will be depreciated.
--- UNITS OF ACTIVITY METHOD
A
Cost
200000
B
Salvage Value
11400
C=A-B
Depreciable base
188600
D
Expected Units throughout the life
145800
E=C/D
Depreciation per unit produced
1.2935528
Year
Units produced
Depreciation per unit
Depreciation expense
2015
52200
1.29
67338
2016
40400
1.29
52116
2017
30100
1.29
38829
2018
23100
1.29
29799
Answer as per Requirement
METHOD
2015
2016
2017
2018
TOTAL
Straight Line Depreciation
47150
47150
47150
47150
188600
Declining Balance Method
100000
50000
25000
13600
188600
Units of Activity
67338
52116
38829
29799
188082 (due to rounding off)
1
Cash Price
38800
2
Sales Tax
3500
3
Shipping Cost
120
4
Insurance
70
5
Installation Costs
100
6
Oil etc
Not considered
A=1+2+3+4+5+6
Cost to be capitalized
42590
B
Salvage Value
5100
C=A-B
Depreciable base
37490
D
Life (in years)
5
E=C/D
Annual SLM Depreciation
7498
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