ent Problem 9-3A (Part Level Submission) On January 1, 2017, Evers Company purch
ID: 2573185 • Letter: E
Question
ent Problem 9-3A (Part Level Submission) On January 1, 2017, Evers Company purchased the following two machines for use in its production process. Machine A: The cash price of this machine was $43,000. Related expenditures included: sales tax $1,700, shipping costs $200, insurance during shipping $100, installation and testing costs $70, and $100 of oll and lubricents to be used with the machinery during its first year of operations. Evers estimates that the useful life of the machine is 5 years with a $4,050 salvage value remaining at the end of that time period. Assume that the straight-line method of depreciation is used Machine B: The recorded cost of this machine was $180,000. Evers estimates that the useful life of the machine is 4 years with a $10,050 salvage value remaining at the end of that time period. (a) indent manually, I no entry is required, select No Entry for tne account bities and 1· The journal entry to record its purchase on January 1, 2017. 2. The journal entry to record annual depreciation at December 31, 2017 2. Attempts: 0 of 15 used SAVE ron uAT" 5Explanation / Answer
Depreciation is the process of allocating a fixed assets cost to expense over its useful life. With passage of time assets value keep on reducing due to usage and wear & tear. It does not represent a cash transaction, but it indicates how much of an asset's value has been used up over time.
The cost of asset include all amounts paid to acquire the asset and to prepare it for its intended purpose. Therefore cost of Machine A will include its cash price, sale tax, shipping cost, insurance, and installation charges. The cost of oil and lubricants will not be included because oil will be used during first year once machine starts operating. Since, this cost is not incurred to acquire the machine therefore it is not included in value of machine.
Machine A cost = $43,000 + $1,700 + $200 + $100 + $70
Machine A cost = $45,070
The journal entry to record the purchase of machine on Januray 1, 2017 is as follows:
Straight line depreciation method allocates an equal amount of depreciation to each year. The equation to find yearly depreciation is as follows:
Straight line depreciation = (Cost - Salvage value) / Estimated useful life in years
Given that cost of machine A is $45,070 useful life is 5 years and salvage value is $4,050. Therefore, as per straight line depreciation method, the depreciation per year will be as follows:
Straight line depreciation = ($45,070-$4,050) / 5
Straight line depreciation = $8,204
So, annual depreciation on machine A is @$8,204 per year.
The journal entry to record annual depreciation at December 31, 2017 is as follows:
Account Titles and explanation Debit Credit Machine A $45,070 Cash $45,070Related Questions
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