Question

On January 1, 2020, Windsor Company purchased the following two machines for use in its production process. Machine A: The cash price of this machine was $43,500. Related expenditures included: sales tax $3,550, shipping costs $150, insurance during shipping $50, installation and testing costs $100, and $200 of oil and lubricants to be used with the machinery during its first year of operations. Windsor estimates that the useful life of the machine is 5 years with a $5,250 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. Windsor estimates that the useful life of the machine is 4 years with a $10,000 salvage value remaining at the end of that time period. Prepare the following for Machine A. (Round answers to 0 decimal places, e.g. 2,125. 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 o for the amounts.) 1. The journal entry to record its purchase on January 1, 2020. 2. The journal entry to record annual depreciation at December 31, 2020. No. Account Titles and Explanation Debit Credit eTextbook and Media List of Accounts

Answer 1

Machine A:
Total Cost of Machine A:
purchase cost	43500
sales tax	3550
shipping	150
Insurance during shipping	50
Installation and testing	200
Total Cost of Machine A	47450
Depreciation per year on straight line = (Cost - salvage)/life years
(47450 - 5250)/5 = 8440
Journal entry:
Date	Accounts Title	Debit $	Credit $
1-Jan-20	Machine A	47450
	Cash		47450
	(total cost of machine booked)
31-Dec-20	Depreciation exp.	8440
	Acc. Dep. - Machine A		8440
	(being 2020 depreciation booked)

Machine B:
Method : Straight line, Annual depreciation rate = 25%
Annual depreciation = (180000 - 10000)/4 = 42500
Year	Depreciation exp.	Acc. Dep.	Book Value
1-Jan-20			180000
31-Dec-20	42500	42500	137500
2021	42500	85000	95000
2022	42500	127500	52500
2023	42500	170000	10000
Method: Declining balance - double, Dep. Rate = 25%*2 = 50%
Year	Depreciation exp.	Acc. Dep.	Book Value
1-Jan-20			180000
31-Dec-20	90000	90000	90000
2021	45000	135000	45000
2022	22500	157500	22500
2023	11250	168750	11250
Method: Unis of activity method
Depreciation per unit = (180000-10000)/102000 = 1.666667
Year	Units	Depreciation exp.	Salvage
2020	43000	71667
2021	30000	50000
2022	17000	28333
2023	12000	20000	10000
	102000	170000
Depreciation expense:
Method	2020	2021	2022	2023	Total
Straight line	42500	42500	42500	42500	170000
Declining balance	90000	45000	22500	11250	168750
Units of activity	71667	50000	28333	20000	170000
Highest depreciation amount 2020
90000 (under Declining balance )
Highest amount of depreciation in year 4 (2023):
42500 (straight line)
Highest total amount over the 4-year period:
170000 (under straight line and Units of activity)