Question

On January 1, 2020, Riverbed Company purchased the following two machines for use in its production process.

Machine A:		The cash price of this machine was $48,500. Related expenditures included: sales tax $1,700, shipping costs $200, insurance during shipping $50, installation and testing costs $120, and $200 of oil and lubricants to be used with the machinery during its first year of operations. Riverbed estimates that the useful life of the machine is 5 years with a $4,750 salvage value remaining at the end of that time period. Assume that the straight-line method of depreciation is used.
Machine B:		The recorded cost of this machine was $180,000. Riverbed estimates that the useful life of the machine is 4 years with a $9,900 salvage value remaining at the end of that time period.

Prepare the following for Machine A. (Round answers to 0 decimal places, e.g. 5,125. Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

1.		The journal entry to record its purchase on January 1, 2020.
2.		The journal entry to record annual depreciation at December 31, 2020.

No.	Account Titles and Explanation	Debit	Credit
1.
2.

Calculate the amount of depreciation expense that Riverbed should record for Machine B each year of its useful life under the following assumptions. (Round depreciation cost per unit to 2 decimal places, e.g. 12.25. Round final answers to 0 decimal places, e.g. 2,125.)

(1)		Riverbed uses the straight-line method of depreciation.
(2)		Riverbed uses the declining-balance method. The rate used is twice the straight-line rate.
(3)		Riverbed uses the units-of-activity method and estimates that the useful life of the machine is 157,500 units. Actual usage is as follows: 2020, 53,500 units; 2021, 43,000 units; 2022, 32,500 units; 2023, 28,500 units.

Depreciation Expense

	2020	2021	2022	2023
Straight-line method	$	$	$	$
Declining-balance method	$	$	$	$
Units-of-activity method	$	$	$	$

Which method used to calculate depreciation on Machine B reports the highest amount of depreciation expense in year 1 (2020)? Declining-balance methodStraight-line methodUnits-of-activity methodAll of the above The highest amount in year 4 (2023)? Declining-balance methodStraight-line methodUnits-of-activity method All of the above The highest total amount over the 4-year period? Declining-balance methodStraight-line methodUnits-of-activity methodAll of the above

Answer 1

Accounts title	Debit	Credit
Equipment	$      50570
Cash		$    50570
(To record purchase of equipment)
Depreciation expense	$ 9164
Accumulated Depreciation - Equipment		$ 9164
(depreciation expense recorded)

Explanation
(1) Purchase price $ 48,500
       Sales tax    1,700
       Shipping costs 200
       Insurance during shipping 50
       Installation and testing 120
       Total cost of machine       $ 50,570

(2)   Recorded cost $ 50,570
       Less: Salvage value 4750
       Depreciable cost       $ 45,820
       Years of useful life ÷ 5
      Annual depreciation       $ 9,164

Part 2

Requirement 1 2 and 3

	Depreciation Expense
		2020	2021	2022	2023
Straight line [(180000-9900)/4]		$ 42,525	$ 42,525	$    42,525	$ 42,525
Double declining [1/4*2 = 50%]		$ 90,000	$ 45,000.00	$    22,500	$ 12,500
Units of Production ($180,000 – 9900) / 157500  = $1.08		$ 57780	$ 46440	$    35100	$ 30780

Which method used to calculate depreciation on Machine B reports the highest amount of depreciation expense in year 1 (2020)?

Declining-balance method

The highest amount in year 4 (2023)?

Straight-line method

The highest total amount over the 4-year period?

All of the above