Question

At the beginning of the year, Grillo Industries bought three used machines from Freeman Incorporated. The machines immediately were overhauled, were installed, and started operating. Because the machines were different, each was recorded separately in the accounts.

	Machine A			Machine B			Machine C
Cost of the asset	$	10,500		$	39,700		$	23,500
Installation costs		800			3,600			2,700
Renovation costs prior to use		600			3,200			3,700
Repairs after production began		800			600			2,200

By the end of the first year, each machine had been operating 8,000 hours.

Required:

1. Compute the cost of each machine.
2. Prepare the journal entry to record depreciation expense at the end of year 1, assuming the following:

	Estimates
Machine	Life		Residual Value				Depreciation Method
A	5	years		$	2,500		Straight-line
B	20,000	hours			2,100		Units-of-production
C	10	years			2,000		Double-declining-balance

a.Compute the cost of each machine.

	Cost of Machine Machine A Machine B Machine C

b. Prepare the journal entry to record depreciation expense at the end of year 1, assuming the following: (If no entry is required for a transaction/event, select "No Journal Entry Required" in the first account field. Do not round intermediate calculations.)

Answer 1

1)
	Machine A	Machine B	Machine C
Cost of the Assets	$ 10,500	$ 39,700	$ 23,500
Add: Installation Costs	$ 800	$ 3,600	$ 2,700
Add: Renovation Costs prior to use	$ 600	$ 3,200	$ 3,700
Total Cost	$ 11,900	$ 46,500	$ 29,900
2)
		Machine A
Depreciation expense ( Cost of Asset (-) Salvage Value) / Useful life	($ 11,900 (-) $ 2,500 ) / 5 Years	$ 1,880
		Machine B
Depreciation expense ( Cost of Asset (-) Salvage Value) / Useful life x Hours Worked	($ 46,500 (-) $ 2,100 ) / 20,000 x 8,000 Hours	$ 17,760
		Machine C
Depreciation expense ( 2 x Depreciation rate x Cost of Asset )	(2 x 10% x $ 29,900)	$ 5,980
Depreciation rate = 1 / Useful life = 1/ 10 = 10%	6 years
Journal entry:
Accounts title and explanations	Debit (in $)	Credit (in $)
Depreciation expense	$ 25,620
Accumulated Depreciation-Machine A		$ 1,880
Accumulated depreciation-Machine B		$ 17,760
Accumulated Depreciation-Machine C		$ 5,980
(To record depreciation expense at the end of year 1)