Question

5) Mandy Manufacturing purchased a machine on August 1, 2014, and it was installed and ready to run on January 1, 2015. The following costs were incurred in the purchase and installation of the machine. Invoice price $ 1,300,000 Freight costs 7.000 Purchase discount 2.500 Installation costs 66,000 Electrical and power connections 32,000 Repairs to correct damage incurred during uncrating 12.000 Adjustment costs 36,000 Spare parts for future use 25,000 Provincial sales tas 91.000 Fines incurred during the transport and unloading of the machine 500 Cost of special foundation for the machine 6,500 Calculate the depreciable cost of the machine. 6) Honest Computers sells computers with a 6-month warranty. In January, the company sold 35,000 computers at $2,600 each and 1,500 computers were returned for repairs. The total repair costs amounted to $185,000. It is estimated that 3% of all units sold will need repairs under warranty at an estimated cost of $300 per unit. Prepare the journal entry to record warranty expense for January. 7) Xeno Co. incurred the following transactions concerning its machinery: 8-Jan-14 Purchased a machine for $55,000 cash, and also paid $3,000 cash to have it installed. Estimated useful life is 10 years and residual value is $5,000. Straight line depreciation is used. 1-Jan-15 The machine's useful life was changed from 10 years to 9. 5-Jan-15 General maintenance on the machine was completed for $800. 1-Jan-16 Paid $3,800 to replace a motor in the machine. This was considered a major overhaul, but it did not alter the machine's useful life Xeno Co uses the calendar year as its fiscal year. Prepare the journal entry to record depreciation expense for 2014. Prepare the journal entry to record depreciation expense for 2015. Prepare the journal entry to record depreciation expense for 2016. Round all values to the nearest dollar.

Answer 1

Ans to Ques n 5 Particulars Invoice price Freight Cost Purchase discount Installation Costs Electrical and Power connections Repairs to correct damage incurred during uncrating Adjustment Costs Provincial Sales Tax Cost of Special Foundation for the machine Depreciable cost of the asset Amt in $ 1,300,000 7,000 (2,500) 66,000 32,000 12,000 36,000 91,000 6,500 1,548,000 Assumptions 1.It is assumed that the adjustment costs of $36000 were specific to the machine and without it the machine was not in a condition to run. 2.Cost of special foundation of $6500 is assumed to meet the criteria for specific foundation of the machine for it to run effectively. 3.Spare parts for future use $ 25000 is not included in the cost as it is not required for the purpose of making the machine ready to use. 4.Fines paid during the transport and unloading $500 is not included in the cost as it is not required for the purpose of making the machine ready to use and could also have been avoided.

Ans to Ques n 6 Given, Units Sold Price per unit Units to be repaired Cost of replacement 35,000 $2,600 1,500 185,000 arranty All Estimated units for replacement under warranty (A) Estimated Cost per unit (B) Warranty expense (A*B) 1,050 300 $ 315,000 Date 315,000 Warranty Expense To, Estimated Warranty Liability January $ 315,000 (Being 3% of the units sold @$300 recorded as estimated warranty expense)

55,000 3,000 58,000 Ans to Ques n 7 Date Particulars 8/1/2014 Purchase Price 8/1/2014 Installation cost 8/1/2014 A.Total Cost 8/1/2014 B.Estimstated life 8/1/2014 C.Salvage value 8/1/2014 D.Net Asset Value (A-C) 31/12/2014 E.Depreciation for the year (D/B) 1/1/2015 F.Estimstated life 31/12/2015 G.Net Asset Value (D-E) 31/12/2015 H.Depreciation for the year (G/F) 31/12/2016 .Net Asset Value (G-H) 31/12/2016 J.Estimstated life 31/12/2016 K.Depreciation each year (1/3) 5,000 53,000 5,300 $ 47,700 5,300 42,400 $ 5,300 Journal Entries to record Depreciation $ 5,300 $ 5,300 550 $ 5,300 31/12/2014 Depreciation To Accumulated Depreciation Being depreciation expense recorded for the year 2014 31/12/2015 Depreciation To Accumulated Depreciation Being depreciation expense recorded for the year 2015 31/12/2016 Depreciation To Accumulated Depreciation Being depreciation expense recorded for the year 2016 $ 5,300 $ 5,300 5,300 Note: General Maintenance of $800 was not capitalised, so not included in depreciation calculation Replacement of motor did not alter the useful life of machine. It is not to be added to the machine cost, so not included in depreciation calculation