Question

Chapter 9 study assignment 0 Seved Help Save & Exit Submit Check my work O'Connor Company ordered a machine on January 1 at a purchase price of $10,000. On the date of delivery, January 2, the company paid $3,000 on the machine and signed a long-term note payable for the balance. On January 3, it paid $100 for freight on the machine. On January 5, O'Connor paid cash for installation costs relating to the machine amounting to $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 $1,100. points Required: 1 X 02:39:17 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? Book Hint Complete this question by entering your answers in the tabs below. Print 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 decre: with a minus sign.) References Assets Liabilities Stockholders' Equity Date Jan 01 Jan 02 Equipment 10,000 Notes Payable (long-term) Jan 03 Cash Equipment Cash Equipment Jan 05 Required 1 Required 2 >

Answer 1

Ans 1 Assets Liabilities Stockholders' Equity + + $7,000 + + Date Jan 01 Jan 02 Jan 02 Jan 03 Jan 03 Jan 05 Jan 05 + Equipment Cash Equipment Cash Equipment Cash $10,000 = 1 Notes Payable(Long erm) $3.000) = $100 = $100 = $600 $600 = + + + Ans 2 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 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 $3,000 $7,000 $100 $600 $10,700 Ans 3 Straight Line Depreciation = (Cost - Salvage Value)/Useful Life Cost $10,700 Salvage Value $1,100 Useful Life 10 Straight Line Depreciation = ($10700-$1100)/10 Straight Line Depreciation = $960 Deprecation Exp for first year $960 $10,700 Less: Depreciation Year 1 $960 Less: Depreciation Year 2 $960 Book Value at the end of Year 2 $8,780 Ans 4 Cost