C. Fixed Assets (25 points) ABC Co. bought a piece of heavy equipment on Septemb

Question

C. Fixed Assets (25 points) ABC Co. bought a piece of heavy equipment on September 29, 2010. Expected 1st year maintenance Residual value Estimated useful life Depreciation method $5,000 $50,000 $400,000 List price Sales tax Frieght Customization Installation 5% 5 years $5,000 $15,000 $10,000 Straight line 1. Compute the capitalized cost of the equipment. 2. In the accounts provided, record the acqusition of the equipment and the first and second years' depreciation expense, using the half year convention Depreciation Expense: echines &Equipment; Cash Machines & Equipment Accumulated Depreciation Machines & Equipment e net book value of the equipment at the end of the second yearz

Explanation / Answer

3. Net book value of equipment at the end of the second year = $450000 - $40000 - $80000 = $330000

Calculations:

Depreciable cost = $450000 - $50000 = $400000

Annual depreciation charge = $400000 / 5 years = $80000

First year depreciation with half year convention = $80000 / 2 = $40000

1 Capitalized cost of the equipment List price 400000 Sales tax @ 5% 20000 Freight 5000 Customization 15000 Installation 10000 450000

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