Question

On January 1, 2015, Zidan Company purchased the following Two Machines for use in its production process.

Machine A: The cash price of this machine was Tk.55,000. Related expenditures included: sales tax Tk.2,750, shipping costs Tk.100, insurance during shipping Tk.75, installation and testing costs Tk.75, and Tk.90 of oil and lubricants to be used with the machinery during its first year of operation. Zidan estimates that the useful life of the machine is 4 years with a Tk.5,000 salvage value remaining at the end of that time period.

Machine B: The recorded cost of this machine was Tk.100,000. Zidan estimates that the useful life of the machine is 4 years with a Tk.10,000 salvage value remaining at the end of that time period.

Instructions

Prepare the following for Machine A.

1. Determine the cost of Machine A
2. The journal entry to record its purchase on January 1, 2015.
3. The journal entry to record annual depreciation at December 31, 2015, assuming the straight-line method of depreciation is used.

Calculate the amount of depreciation expense that Zidan should record for Machine B each year of its useful life under the following assumption.

1. Zidan uses the straight-line method of depreciation.
2. Zidan uses the declining-balance method. The rate used is twice the straight-line rate.
3. Zidan uses the units-of-activity method and estimates the useful life of the machine is 25,000 units. Actual usage is as follows: 2015, 5,500 units; 2016, 7,000 units; 2017, 8,000 units; 2018, 4,500 units.

   On January 1, 2015, Zidan Company purchased the following Two Machines for use in its production process.

Answer 1

F G Н K M N U R Credit Debit 58000 B MACHINE A a. JOURNAL ENTRIES answer date General Journal b 1-Jan Machinery Cas or Bank (To record machinery purchased) 31-Dec Depreciation (58000-50001/4 yrs accumulated depreciation-Machinery (To record dep. 58000 13250 13250 note- Here the cost of acquisition includes everything except oil and lubricants required for year use and the sum is equal to $58,000 Cost of machinery A = 55000+2750+75+75+100 = $58,000 a MACHINE B Zidan uses the straight-line method of depreciation. dep. For machinery B= (COST-SALVAGE VALUE) /USEFUL LIFE = (100000-10000/4 $22500 each for 4 years b. Zidan uses the declining-balance method. The rate used is twice the straight-line rate > nu C Zidan uses the units-of-activity method and estimates the useful life of the machine is 25,000 units. Actual usage is as follows: 2015,5,500 units; 2016, 7,000 units; 2017, 8,000 units: 2018, 4,500 units DEP rate under SLM= (Depreciation total cost) 100 = (22500/100000) 100 = 22.5% DEP rate under DB method = 22.5%x2 = 45%. dep. Expense under DB method- Original cost Depreciation end of year 1(100,000 x 45%) NBV end of year 1 Depreciation end of year 2 (55,000 x 45%) NBV end of year 2 Depreciation end of year 3 (30250x45%) NBV end of year 3 Depreciation end of year 4 (16637.50 x 45%) NBV end of year 4 dep. Expense = [(cost-SV)'Actual activity performed during the year]/total activity estimates for useful life e 100000 45000 55000 24750 30250 13612.5 16637.5 7486.875 9150.625 year 1 year 2 year 3 [(100000-10000)*5500)/25000 [(100000-10000)* 7000/25000 [(100000-10000)*8000]/25000 [(100000-10000)*4500)/25000 19800 25200 28800 16200 year 4 .