Homework Answers
Answer 1:
Cost to be allocated = Purchase cost + Transportation cost = 38000 + 2000 = $40,000
Cost of each machine is calculated as below:
Appraisal values are used to allocate cost. The reason being:
Appraisal costs represents current value of machines. We cannot use book value in Hangar's book as they are based on historical costs and depreciation method(s) used by Hangar. Appraisal costs are more appropriate for use for allocations.
Answer 2:
Machine A:
Depreciation expense = (Cost - salvage value) / useful life = (9900 - 1500) / 5 = $1680
Machine B:
Depreciation expense = ((Cost - salvage value) / Total units of production) * Units of production in Year 1
= ((26500 - 900) / 40000) * 8000 = $5120
Machine C:
Depreciation expense = (Cost - salvage value) / useful life = (7600 - 2000) / 4 = $1,400
Total year 1 depreciation expense = 1680 + 5120 + 1400 = $8,200
Journal entry to record depreciation is as follows:
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