At the beginning of the year, Oakmont Company bought three used machines from Am

Question

At the beginning of the year, Oakmont Company bought three used machines from American Manufacturing. Inc. The machines immedistely were overhauled, were instaled, and starled operating. Because the machines were different, each was recorded separately in the accounts. Machine A Machine BMachine C Amount peid for asset Installation costs Renovation costs prior to use Repairs after production began $20,000 11,400 $11,100 500 900 720 2,200780 950 750 600 400 By the end of the first year, each machine had been operating 4,000 hours Required: 1. Compute the cost of each machine Cost of Machine $ 22,600 Machine A Machine B Machine C 12.400 $12,500

Explanation / Answer

Machine A Machine B Machine C Type of Expense Amount paid for the Asset 20900 11400 11100 Capital Installation Cost 950 600 500 Capital Renovation Pre Use 750 400 900 Capital Repairs Post Use 720 2200 780 Revenue Capitalized Amount 22600 12400 12500 Depreication Technique SLM Units of Prodn D. Declining Method Residual Value 1200 1800 1800 Life 5 20000 10 Depreciation Calculation for Different Machines: Machine A Amount Asset Capitalised Value 22600 Less: Residual Value -1200 Depreciable Value 21400 Life 5 Depreciable Value PA 4280 (21400/5) Machine B Amount Asset Capitalised Value 12400 Less: Residual Value -1800 Depreciable Value 10600 Total Life 20000 Depreciable Value per Activity 0.53 (10600/20000) Usage for year 4000 Depreciable for the year 2120 (0.53*4000) Machine C Amount Asset Capitalised Value 12500 Total Life 10 Depreciation Rate as per SLM 10% (1/Life(10)*100) Double Declining Method 20% (Twice in SLM) Depreciable for the year 2500 (12500*20%) Journal Entry for posting Depreciation: Depreciation Account Dr. 8900 To Accumlated Depreciation-Machine A 4280 To Accumlated Depreciation-Machine B 2120 To Accumlated Depreciation-Machine C 2500 (Being Depreciation for year recorded)

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