Question

PA9-1 Computing Acquisition Cost and Recording Depreciation under Three Alternative Methods (LO 9. 2, LO 9-3) At the beginning of the year, Grillo Industries bought three used machines from Freeman Incorporated. The machines immediately were overhauled, were installed, and started operating. Because the machines were different, each was recorded separately in the accounts. Cost of the asset Installation costs Renovation costs prior to use Repairs after production began Machine A Machine B Machine c $ 9,200 $38,400 $22,200 900 2,300 1.400 700 1,900 2,400 700 800 900 By the end of the first year, each machine had been operating 8,000 hours Required: 1. Compute the cost of each machine. 2. Prepare the journal entry to record depreciation expense at the end of year 1, assuming the following: Estimates Residual Machine Life Value 5 years $1,200 B 20,000 hours 1,600 10 years 1,600 Depreciation Method Straight-lin Units-of-production Double-declining- balance Complete this question by entering your answers in the tabs below. Required Required Compute the cost of each machine. Cost of Machine Machine A Machine B Machine C Required 2 >

Answer 1

Requirement 1

	Total Cost of Machine
Machine A	$    10,800.00
Machine B	$    42,600.00
Machine C	$    26,000.00

.

	Amount paid for assets	Installation cost	Renovation cost	Total Cost of Machine
Machine A	$         9,200.00	$            900.00	$               700.00	$    10,800.00
Machine B	$       38,400.00	$        2,300.00	$           1,900.00	$    42,600.00
Machine C	$       22,200.00	$        1,400.00	$           2,400.00	$    26,000.00

Requirement 2

Transaction	General Journal	Debit	Credit
1..	Depreciation expense	$    23,520.00
	Accumulated depreciation-Machine A		$        1,920.00
	Accumulated depreciation-Machine B		$      16,400.00
	Accumulated depreciation-Machine C		$        5,200.00
	(To record depreciation expense)

Working

Straight line Method
A	Cost	$ 10,800
B	Residual Value	$ 1,200
C=A - B	Depreciable base	$ 9,600
D	Life [in years left ]	5
E=C/D	Annual SLM depreciation	$ 1,920

.

Units of Production method
A	Cost	$ 42,600
B	Residual Value	$ 1,600
C=A - B	Depreciable base	$ 41,000
D	Usage in units(in Hours)	20000
E	Depreciation per hour	$                        2.05

.

Depreciation schedule-Units of Activity
Year	Book Value	Usage	Depreciation expense	Ending Book Value	Accumulated Depreciation
1	$                42,600	8000	$               16,400	$                    26,200	$            16,400

.

Double declining Method
A	Cost	$ 26,000
B	Residual Value	$ 1,600
C=A - B	Depreciable base	$ 24,400
D	Life [in years]	10
E=C/D	Annual SLM depreciation	$ 2,440
F=E/C	SLM Rate	10.00%
G=F x 2	DDB Rate	20.00%

.

Depreciation schedule-Double declining
Year	Beginning Book Value	Depreciation rate	Depreciation expense	Accumulated Depreciation	Ending Book Value
1	$ 26,000	20.00%	$ 5,200	$ 5,200	$ 20,800