Question

Ch.9 3. On Septernber 1, 2017, Mettock Company purchased the following machine for use its production process. The cash price of this machine was $49,500. Related expenditures included: sales tax $3,400, shipping costs $100, insurance during shipping $110, installation and testing costs $90, and $100 of oil and Jubricants to be used with the machinery during its first year of operation Metlock estimates that the useful life of the machine is 5 years with a $4,050 sa remaining at the end of that time period. Assume that the straight-line method of depreciation s used. Iue a.The journal entry to record its purchase on September 1, 2017. b.The journal entry to record annual depreciation at December 31, 2017. c. Prepare the depreciation schedule for Straight-line method. d. Prepare the depreciation schedule for Decining Balance method. C Annual Depreciation Expense Accumulated Depreciation Rate Book Value Depreciation Cost 2017 2018 2019 2020 2021 2022 Annual Depreciation Depreciation Expense Accumulated Cost Book Value Rate Depreciation 2017 2018 2019 2020 2021 2022

Answer 1

Calculation of cost of the machine to be capitalized:

cash price: $49500

add: sales tax $3400

add: shipping cost $100

add: Insurance during shipping $110

add: Installation and testing costs $90

add: first oil and lubricants $100

Total cost to be capitalized = $53,300

solution :

a.) Journal to record purchase : (on September 1, 2017)

Machine (Property, plant and equipment) account debit $53300

Cash account credit $53300

(being machine purchased in cash)

b.) Annual depreciation : (on december 31,2017 ) :

Note: Assets is used 4 months in current year therefore proportionate depreciation has to be charged.

Annual Depreciation as per Straight-line method = (Cost - Salvage) / Useful life of asset = [ ($53300 - $4050) / 5 years ]= $9850

Depreciation for this year =[ ($53300 - $4050) / 5 years ] * 4months/12 = $3283.

c.) Depreciation schedule as per Straight Line Method :

Depreciation rate (effective) on cost = [($53300- $4050) /$53300 ] / 5 Years = 18.48%

	Cost	Depreciation Rate	Annual Depreciation expense	Accumulated depreciation	Book value
2017	53300	18.48%	3283	3283	50017
2018	53300	18.48%	9850	13133	40167
2019	53300	18.48%	9850	22983	30317
2020	53300	18.48%	9850	32833	20467
2021	53300	18.48%	9850	42683	10617
2022	53300	18.48%	6567	49250	4050

d.) Depreciation schedule as per Declining method :

NOTE : In Declining balance method there is no use of Salvage value.

Note : The rate of depreciation is assumed as 20%

	Cost	Depreciation Rate	Annual Depreciation expense	Accumulated depreciation	Book value
2017	53300	20%	3553	3553	49747
2018	53300	20%	9949	13502	39798
2019	53300	20%	7960	21462	31838
2020	53300	20%	6368	27830	25470
2021	53300	20%	5094	32924	20376
2022	53300	20%	4075	36999	16301