Computing the Acquisition Cost and Recording Depreciation under Three Alternative Methods (AP8-3)
At the beginning of the year, Plummer’s Sports Center bought three used fitness machines from Advantage, Inc. The machines immediately were overhauled, installed, and started operating. The machines were different; therefore, each had to be recorded separately in the accounts.
| Machine A | Machine B | Machine C |
Amount paid for asset | $11,000 | $30,000 | $8,000 |
Installation costs | 500 | 1,000 | 500 |
Renovation costs prior to use | 2,500 | 1,000 | 1,500 |
By the end of the first year, each machine had been operating 4,800 hours.
Required:
1. Compute the cost of each machine.
2. Give the entry to record depreciation expense at the end of year 1, assuming the following:
| ESTIMATES |
| |
Machine | Life | Residual Value | Depreciation Method |
A | 5 years | $1,000 | Straight-line |
B | 60,000 hours | 2,000 | Units-of-production |
C | 4 years | 1,500 | Double-declining-balance |
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