Question

Carla Vista Company manufactures routers used in industrial modems. On May 15, 2017, Carla Vista purchased a precision welding machine at a retail price of $109,200. Carla Vista paid 5% sales tax on this purchase and hired a contractor to build a "clean" platform enclosure for the machine for $8,250. Carla Vista estimates the machine will have a 5-year useful life, with a salvage value of $9,100 at the end of 5 years. Carla Vista uses straight-line depreciation and employs the "half-year" convention in accounting for partial-year depreciation. Carla Vista's fiscal year ends on December 31. At what amount should Carla Vista record the acquisition cost of the machine? Acquisition cost of the machines SHOW LIST OF ACCOUNTS LINK TO TEXT LINK TO TEXT How much depreciation expense should Carla Vista record in 2017 and in 2018? Depreciation expense 2017 Depreciation expense 2018 s

Answer 1

Acquisition cost of the machine = $109,200 + $(109,200*5%) + $8,250 Acquisition cost of the machine = $109,200 + $5,460 + $8,250 Acquisition cost of the machine = $122,910 Annual depreciation = ($122,910-$9,100)/5 Annual depreciation = $22,762 Depreciation expense 2017 = $22,762/2 = $11,381 Depreciation expense 2018 = $22,762 Amount to be reporetd in balance sheet = $122,910-$11,381-$22,762 Amount to be reporetd in balance sheet = $88,767

Book value as on June 30, 2019 = $88,767-($22,762/2) Book value as on June 30, 2019 = $88,767-$11,381 Book value as on June 30, 2019 = $77,386 Undiscounted future cash flows = $68,400 Book value is less more than the undiscounted future cash flows, the machine is to be impaired. Impairment loss = Book value - Fair value of machine Impairment loss = $77,386-$59,000 Impairment loss = $18,386 Credit Debit $ 18,386 Account Titles and Explanation Loss on impairment Accumulated depreciation Machinery (To record the impairment loss) $ 18,386