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. $20,700 Machine A $ 20,700 850 650 520 Machine B $11,200 1,000 800 2,000 Amount paid for asset Installation costs Renovation costs prior to use Repairs after production began $11,200 Machine C $ 10,900 300 700 580 $10,900 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: Machine Estimates Life Residual Value 5 years $1,600 20,000 hours 1,600 10 years 1,600 Depreciation Method Straight-line Units-of-production Double-declining-balance MU

Answer 1

Requirement 1

	Total Cost of Machine
Machine A	$    22,200.00
Machine B	$    13,000.00
Machine C	$    11,900.00

Working

	Amount paid for assets	Installation cost	Renovation cost	Total Cost of Machine
Machine A	$       20,700.00	$            850.00	$               650.00	$    22,200.00
Machine B	$       11,200.00	$        1,000.00	$               800.00	$    13,000.00
Machine C	$       10,900.00	$            300.00	$               700.00	$    11,900.00

Requirement 2

Transaction	General Journal	Debit	Credit
1	Depreciation expense	$       8,780.00
	Accumulated depreciation-Machine A		$        4,120.00
	Accumulated depreciation-Machine B		$        2,280.00
	Accumulated depreciation-Machine C		$        2,380.00
	(To record depreciation expense)

.

Working

Straight line Method
A	Cost	$ 22,200
B	Residual Value	$ 1,600
C=A - B	Depreciable base	$ 20,600
D	Life [in years left ]	5
E=C/D	Annual SLM depreciation	$               4,120.00

.

Units of Production method
A	Cost	$ 13,000
B	Residual Value	$ 1,600
C=A - B	Depreciable base	$ 11,400
D	Usage in units(in Hours)	20000
E	Depreciation per hour	$                        0.57

.

Double declining Method
A	Cost	$ 11,900
B	Residual Value	$ 1,600
C=A - B	Depreciable base	$ 10,300
D	Life [in years]	10
E=C/D	Annual SLM depreciation	$ 1,030
F=E/C	SLM Rate	10.00%
G=F x 2	DDB Rate	20.00%

.

Depreciation schedule-Double declining
Year	Beginning Book Value	Depreciation rate	Depreciation expense	Accumulated Depreciation	Ending Book Value
1	$ 11,900	20.00%	$ 2,380	$ 2,380	$ 9,520