Question

O'Connor Company ordered a machine on January 1 at a purchase price of $110,000. On the date of delivery, January 2, the compar paid $28,000 on the machine and signed a long-term note payable for the balance. On January 3, it paid $1,100 for freight on the machine. On January 5, O'Connor paid cash for installation costs relating to the machine amounting to $6,600. 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 $11.800. 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. 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 Required 2 Required 3 Required &

Answer 1

1)

Date	Asset	Liabilities	equity
jan 01	NA [since order of machine will not effect accounting equation]	NA	NA
jan 2	+ 110000 machine	+82000   [long term debt 110000-28000]
	-28000 cash
jan3	-1100 cash
	+1100    [capitalized to machine]
jan5	-6600   cash
	+6600    [capitalized to machine]

2)Acquisition cost =purchase cost+freight +installation

         = 110000+1100+6600

           = $ 117700

3)Depreciation expense =[cost-salvage ]/useful life

            =[117700-11800]/10

              = $10590

4)Accumulated depreciation for two years = 10590*2 = 21180

Book value at year2 = cost -accumulated depreciation

     = 117700-21180

        = $96520