Question

O'Connor Company ordered a machine on January 1 at a purchase price of $55.000. On the date of delivery, January 2, the company paid $14,000 on the machine and signed a long-term note payable for the balance. On January 3, it paid $600 for freight on the machine. On January 5, O'Connor paid cash for installation costs relating to the machine amounting to $3,300. On December 31 (the end of the accounting period), O'Connor recorded depreciation on the machine using the straight-line method with an estimated useful life of 10 years and an estimated residual value of $5,900. Required: 1. Indicate the effects (accounts, amounts, and + for increase, - for decrease) of each transaction (on January 1, 2, 3, and 5) on the accounting equation. 2. Compute the acquisition cost of the machine. 3. Compute the depreciation expense to be reported for the first year. 4. What should be the book value of the machine at the end of the second year? Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 Required 4 Indicate the effects (accounts, amounts, and + for increase, - for decrease) of each transaction (on January 1, 2, 3, and 5) on the accounting equation. (Enter any balances with a minus sign.) Date Assets Liabilities Stockholders' Equity Jan 01 Jan 02 Jan 05 Required 1 Required 2 >

Answer 1

Stockholders' Equity Date Jan 01 Jan 02 Liabilities Ans 1 Assets Equipment $55,000 Notes Payable(Long erm) -$14,000 $600 -$600 $3,300 -$3,300 $41,000 Jan 02 Cash Equipment Cash Jan 03 Jan 03 Equipment Cash Jan 05 Jan 05 Cost of the fixed assets consists of the following: i) its purchase price, import duty and non refundable taxes. Any trade discount and rebate should be excluded Ans 2 ii) cost directly attributable for bringing the assets their present location and condition which is necessary for the operation of the assets Some examples of the directly attributable costs are delivery and handling cost, installation and assembly cost, site preparation cost, testing cost incurred ensure assets is properly functioning or not. Acquisition cost of the machine Cash paid Notes Payable Freight Cost Installation Cost Acquisition cost $14,000 $41,000 $600 $3,300 $58,900 Straight Line Depreciation (Cost - Salvage Value)/Useful Life Ans 3 $58,900 $5,900 Cost Salvage Value Useful Life 10 Straight Line Depreciation ($58900-$5900)/10 Straight Line Depreciation = Deprecation Exp for first year $5,300 $5,300 $58,900 -$5,300 -$5,300 $48,300 Cost Less: Depreciation Year 1 Less: Depreciation Year 2 Book Value at the end of Year 2 Ans 4