Computing the Acquisition Cost and Recording Depreciation under Three Alternative Methods (P8-3)
At the beginning of the year, Ramos Inc. bought three used machines from Santaro Corporation. 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 |
Cost of the asset | $12,200 | $32,500 | $21,700 |
Installation costs | 800 | 1,100 | 1,100 |
Renovation costs prior to use | 600 | 1,400 | 1,600 |
By the end of the first year, each machine had been operating 7,000 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 | 8 years | $1,000 | Straight-line |
B | 33,000 hours | 2,000 | Units-of-production |
C | 5 years | 1,400 | Double-declining-balance |
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