Journal entries:
Date | Account title and explanation | Debit | Credit |
Mar 24 | Machine X | $96,750 | |
Machine Y | $118,250 | ||
Cash | $215,000 | ||
[To record purchase of assets] | |||
Mar 29 | Machine Y | $5,900 | |
Cash | $5,900 | ||
[To record improvements to machine] | |||
Dec 31 | Depreciation expense-Machine X | $13,928 | |
Depreciation expense-Machine Y | $10,350 | ||
Accumulated depreciation-Machine X | $13,928 | ||
Accumulated depreciation-Machine Y | $10,350 | ||
[To record depreciation expense] |
Calculations:
i.Fair value ratio:
Fair value | ||
Machine X | $106,650 | 45% |
Machine Y | $130,350 | 55% |
Total | $237,000 | 100% |
So that, Total Cost of machines should be allocated in the fair value ratio.
ii.Total cost:
Cost | $210,000 |
Transportation and installation costs | $5,000 |
Total cost | $215,000 |
iii.Allocation of Total cost:
Total Cost | ||
Machine X | $96,750 | 45% |
Machine Y | $118,250 | 55% |
Total | $215,000 | 100% |
iv. Depreciation expense:
Depreciation expense on Machine X = [(96,750 cost-3,900 salvage value)/5 years] x (9 months/12 months)
= (92,850/5) x 9/12
= 18,570 x 9/12
= 13,928
Depreciation expense on Machine Y = [124,150 cost*-13,750 salvage value)/8 years] x (9 months/12 months)
= (110,400/8) x 9/12
= 13,800 x 9/12
= 10,350
*Cost of Machine Y = $118,250+$5,900 improvements = $124,150
On March 20, 2020, Fine Touch Corporation purchased two machines at auction for a combined total...
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