Question

Cornerstone Exercise 7-18 (Algorithmic)
Acquisition Cost

Cox Company recently purchased a machine by paying $13,600 cash and signing a 6-month, 10% note for $10,000. In addition to the purchase price, Cox incurred the following costs related to the machine: freight charges, $720; interest charges, $500; special foundation for machine, $400; installation costs, $1,100.

Required: Determine the cost of the machine. ($25820 was wrong.)

Exercise 7-59 (Algorithmic)
Disposal of Tangible Capital Asset

Pacifica Manufacturing retired a computerized metal stamping machine on December 31, 2018. Pacifica sold the machine to another company and did not replace it. The following data are available for the machine:

Cost (installed), 1/1/2013	$920,000
Residual value estimated on 1/1/2013	160,000
Estimated life as of 1/1/2013	8 years

The machine was sold for $182,000 cash. Pacifica uses the straight-line method of depreciation.

Required:

1. Prepare the journal entry to record depreciation expense for 2018.

2018 Dec. 31	Depreciation Expense
	Accumulated Depreciation
	Record depreciation expense

2. Compute accumulated depreciation at December 31, 2018. $

3. Prepare the journal entry to record the sale of the machine. For those boxes in which no entry is required, leave the box blank.

2018 Dec. 31	Cash
	Accumulated Depreciation
	Loss on Disposal of Property, Plant, and Equipment
	Machine
	Record sale of machine

Answer 1

--Both the exercises have been answered

• Exercise 7-18

All the cost incurred related to the purchase and installation of the machine are to be capitalized and added to the cost of machine.

Cash payment	$13,600
Notes payable	$10,000
Total purchase cost		$23,600
Freight Charges		$720
Special foundation		$400
Installation Cost		$1,100
Cost [excluding interest] = Wrong answer as said by you		$25,820
Add: Interest charges		$500
The Cost of the machine		$26,320

• Exercise 7-59

--Working

A	Cost	$          920,000.00
B	Residual Value	$          160,000.00
C=A - B	Depreciable base	$          760,000.00
D	Life [in years]	8
E=C/D	Annual SLM depreciation	$            95,000.00

--Requirement 1

2018 Dec. 31	Depreciation Expense	$ 95,000
	Accumulated Depreciation		$ 95,000
	Record depreciation expense

--Requirement 2

A	Annual SLM depreciation	$              95,000.00
	Acquired on	01-Jan-13
	Sold on	31-Dec-18
B	No. of years	6
C = A x B	Accumulated Depreciation at Dec 31 , 2018	$           570,000.00

--Requirement 3

2018 Dec. 31	Cash	$ 182,000 [Cash received]
	Accumulated Depreciation	$ 570,000 [calculated above]
	Loss on Disposal of Property, Plant, and Equipment	$ 168,000 [Difference: 920000 – 182000 – 570000]
	Machine		$ 920,000 [original cost]
	Record sale of machine