The Miller and Elfman Company (ME) purchased a machine on January 1, 2017 for a

Question

The Miller and Elfman Company (ME) purchased a machine on January 1, 2017 for a list price of $320,000. In addition to the list price, ME paid $18,000 in sales tax. The company also incurred installation and delivery charges of $2,000 in total. During the installation process Miller tripped over the installer and knocked Elfman into the machine causing damages to the machine in the amount of S1000The machine is expected to have a useful life of 10 years with an estimated salvage value of S30,000. REQUIREMENTS 1. Compute the initial cost of the machine on 1-1-2017. (1.5 points) 2. Compute the yearly depreciation expense under the straighi-line method. (1.5 points) 3. Assume ME sells the asset at the end of 7 years (12-31-2023) for $125,000. Compute the book value at 12-31-2023 and calculate the gain or loss on the sale. (2 points) BOOK VALUE: GAIN OR LOSS: 4. Record the journal entry for the sale on 12-31-2023. (3 points)

Explanation / Answer

1. Initial cost of machine :

2) Yearly depreciation under straight line method :

Straight line method dep = 341000-30000/10 = 31100

3) Book value at the end of 7 years = 341000-(31100*7) = 123300

Gain or loss = 125000-123300 = 1700

4) Journal entry :

Purchase price of machine 320000 Sales tax 18000 Installation cost 2000 Repairs cost 1000 Initial cost of machine 341000

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