Question

O'Connor Company ordered a machine on January 1 at a purchase price of $120,000. On the date of delivery, January 2, the company paid $30,000 on the machine and signed a long-term note payable for the balance. On January 3, it paid $1,200 for freight on the machine. On January 5, O'Connor paid cash for installation costs relating to the machine amounting to $7,200. 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 $12,800. 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. (Enter any decreases to account balances with a minus sign.) Assets Liabilities Stockholders' Equity Date Jan 01 Jan 02 Jan 03 Jan 05

Answer 1

Answer to Requirement 1: Liabilities +Stockholders' Equity Date Assets Jan.1 No Impact at the time of Ordering the Machine Note Payable $ 90,000.00 Jan.2 Machine Cash $ 120,000.00 $ (30,000.00) Jan.3 Machine Cash $ $ 1,200.00 (1,200.00) Jan.5 Machine Cash 7,200.00 (7,200.00) $ Total Assets $ 90,000.00 Total Liabilities $ 90,000.00 Total Stockholders' Equity $

Answer to Requirement 2: Calculation of the Acquisition Cost of the Machine: Purchase Price Freight Charges Installation Cost Acquisition Cost $ 120,000.00 $ 1,200.00 $ 7,200.00 $ 128,400.00 Answer to Requirement 3: Calculation of Depreciation Expense for First Year: Method Of Depreciation is Straight Line Method. Useful Life is 10 Years Residual Value is $12,800.00 Annual Depreciation = (Cost - Residual Value)/Useful Life = ($128,400 - $12,800)/10 = $11,560.00 So Depreciation for First Year = $11,560 Answer to Requirement 4: Calculation of Book Value at the end of the Second Year: Acquision Cost Less: Accumulated Depreciation (2 x $11560) Book Value 128,400.00 (23,120.00) A 105,280.00