Question

At the beginning of the year, Oakmont Company bought three used machines from American Manufacturing, Inc. 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
Amount paid for asset	$	20,900		$	11,400		$	11,100
Installation costs		950			600			500
Renovation costs prior to use		750			400			900
Repairs after production began		720			2,200			780

By the end of the first year, each machine had been operating 4,000 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: (If no entry is required for a transaction/event, select "No Journal Entry Required" in the first account field. Do not round intermediate calculations.)

NEED THE JOURNAL ENTRY PLEASE!

	Estimates
Machine	Life	Residual Value				Depreciation Method
A	5 years		$	1,200		Straight-line
B	20,000 hours			1,800		Units-of-production
C	10 years			1,800		Double-declining-balance

Answer 1

Solution

Oakmont Company

1. Computation of cost of each machine:

	Machine A	Machine B	Machine C
Amount paid for asset	$20,900	$11,400	$11,100
Add: Installation costs	$950	$600	$500
Add: Renovation costs prior to use	$750	$400	$900
Cost of each machine	$22,600	$12,400	$12,500

Notes:

The installation costs are essential to make the machine ready for use. Hence this forms part of the asset cost. Renovation costs prior to use also form part of the cost as these are incurred prior to use and are necessary to prepare the asset for intended use.

Repairs expenses after production started are not included in the asset cost as these are of revenue nature.

2. Entry to record the depreciation expense:

Date	Account Titles and Explanation	Ref. No.	Debit	Credit
EOY	Depreciation Expense - Machine A		$4,280
	Depreciation Expense - Machine B		$2,120
	Depreciation Expense - Machine C		$2,500
	Accumulated Depreciation - Machine A			$4,280
	Accumulated Depreciation - Machine B			$2,120
	Accumulated Depreciation - Machine C			$2,500
	(To record depreciation expense on each machine)