value: 8.00 points O\'Connor Company ordered a machine on January 1 at a purchas

Question

value: 8.00 points O'Connor Company ordered a machine on January 1 at a purchase price of $55,000. On the date of delivery, January 2, the company paid $14,000 on the machine and signed a long-term note payable for the balance. On January 3, it paid $600 for freight on the machine. On January 5, O'Connor paid cash for installation costs relating to the machine amounting to $3,300. On December 31 (the end of the accounting period), O'Connor recorded depreciation on the machine using the straight-line method with an estimated useful life of 10 years and an estimated residual value of $5,900. Required: 1. Indicate the effects (accounts, amounts, and for increase for decrease) of each transaction (on January 1, 2, 3, and 5) on the accounting equation. (Enter any decreases to account balances with a minus sign.) Date Jan 01 Jan 02 Assets Liabilities Stockholders' Equity Jan 03 Jan 05 2. Compute the acquisition cost of the machine. uisition Cost

Explanation / Answer

Req 1: Date Assets   = Liabilities + Stockholder Equity (Machinery+Cash) 1-Jan 0 0 0 2-Jan 55000 -14000 = 41000 + 0 3-Jan 55600 -14600 = 41000+ 0 5-Jan 58900-17900 = 41000 + 0 Req 2: Acquisition cost of Machine: Original cost of machine 55000 Add: Freight paid 600 Add: Installation charges paid 3300 Acquistion cost of machine 58900 Req 3: Acquisition cost of machine 58900 Salvage value 5900 Estimated life in yrs 10 Annual Depreciation = Acquisition cost - Salvage value / Estimated life ( 58900 -5900 ) /10 = $ 5300 Depreciation expense of First year $5,300 Req4: Acquisition cost of machine =   $ 58,900 Less: Depreciation for two yrs(5300*2) $ 10,600 Book value at the end of Second year $ 48,300

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