Question

Problem 10-3A On January 1, 2017, Evers Company purchased the following two machines for use in its production process Machine A: The cash price of this machine was $46,500. Related expenditures included: sales tax $3,700, shipping costs $100, insurance during shipping $50, installation and testing costs $70, and $200 of oil and lubricants to be used with the machinery during its first year of operations. Evers estimates that the useful life of the machine is 5 years with a $4,300 salvage value remaining at the end of that time period. Assume that the straight-line method of depreciation is used Machine B: The recorded cost of this machine was $180,000. Evers estimates that the useful life of the machine is 4 years with a $10,150 salvage value remaining at the end of that time period. Prepare te folowing for Machine A. (Round answers to 0 decimal places, e.g·s, 12s. credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry for the account titles and enter 0 for the amounts 1. The journal entry to record its purchase on January 1, 2017 2. The journal entry to record annual depreciation at December 31, 2017 No. Account Titles and Explanation Debit 2.

Answer 1

Answer

• Problem 10-3A

Working – MACHINE A

	Cash price	$                46,500
	Sales Tax	$                   3,700
	Shipping Costs	$                      100
	Insurance	$                         50
	Installation and testing cost	$                         70
A	Total Cost of Machine A	$                50,420
B	Salvage value	$                   4,300
C = A - B	Depreciable base	$                46,120
D	Estimated life	5
E = C/D	Annual Depreciation	$                   9,224

--Entries asked for MACHINE A

Date	Accounts title	Debit	Credit
01-Jan-17	Equipment [Machine A]	$                50,420
	Cash		$               50,420
	(Machine A purchased)
31-Dec-17	Depreciation Expense - Equipment	$                   9,224
	Accumulated Depreciation - Equipment		$                 9,224
	(12 month depreciation)

• Answers for MACHINE B

	2017	2018	2019	2020
Straight Line	42463	42463	42463	42463
Declining balance	90000	45000	22500	12350
Units of Activity	66990 [43500 x $ 1.54]	49280 [32000 x 1.54]	31570 [20500 x 1.54]	21791 [ 14150 x 1.54]

Working

--Straight Line

A	Cost	$          180,000.00
B	Residual Value	$            10,150.00
C=A - B	Depreciable base	$          169,850.00
D	Life [in years]	4
E=C/D	Annual SLM depreciation	$            42,462.50

--Declining balance

A	Cost	$          180,000.00
B	Residual Value	$            10,150.00
C=A - B	Depreciable base	$          169,850.00
D	Life [in years]	4
E=C/D	Annual SLM depreciation	$            42,462.50
F=E/C	SLM Rate	25.00%
G=F x 2	DDB Rate	50.00%

Year	Beginning Book Value	Depreciation rate	Depreciation expense	Ending Book Value
1	$           180,000.00	50.00%	$         90,000.00	$             90,000.00
2	$              90,000.00	50.00%	$         45,000.00	$             45,000.00
3	$              45,000.00	50.00%	$         22,500.00	$             22,500.00
4	$              22,500.00		$         12350.00	$            10150.00

--Unit sof activity

A	Cost	$          180,000.00
B	Residual Value	$            10,150.00
C=A - B	Depreciable base	$          169,850.00
D	Usage	110,150
E = C/D	Depreciation per …..	$                       1.54

• Answers

--Highest depreciation in Year 1 = Declining balance $ 90000
--Highest amount in Year 4 = Straight Line
--Highest total amount over 4 year period = Straight Line