Question

During Year 1, Ashkar Company ordered a machine on January 1 at an invoice price of $27,000. On the date of delivery, January 2, the company paid $7,000 on the machine, with the balance on credit at 9 percent interest due in six months. On January 3, it paid $1,100 for freight on the machine. On January 5, Ashkar paid installation costs relating to the machine amounting to $2,900. On July 1, the company paid the balance due on the machine plus the interest. On December 31 (the end of the accounting period), Ashkar recorded depreciation on the machine using the straight-line method with an estimated useful life of 10 years and an estimated residual value of $4,800.

Answer 1

Solution 2:

Acquisition cost of machine
Particulars	Amount
Invoice price	$27,000.00
Freight	$1,100.00
Installation cost	$2,900.00
Acquisition cost	$31,000.00

Solution 3:

Depreciation expense for year 1 = (Cost - Salvage value) / useful life = ($31,000 - $4,800) / 10 = $2,620

Solution 5:

Computation of book value
Particulars	Amount
Equipment - Cost	$31,000.00
Accumulated depreciation ($2,620*2)	-$5,240.00
Net book value at end of year 2	$25,760.00