Question

At the beginning of the year, Grillo Industries bought three used machines from Freeman Incorporated. The machines immediately were overhauled, were installed, and started operating. Because the machines were different, each was recorded separately in the accounts.

	Machine A			Machine B			Machine C
Cost of the asset	$	9,300		$	38,500		$	22,300
Installation costs		950			2,400			1,500
Renovation costs prior to use		750			2,000			2,500
Repairs after production began		800			900			1,000

By the end of the first year, each machine had been operating 8,000 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: (If no entry is required for a transaction/event, select "No Journal Entry Required" in the first account field. Do not round intermediate calculations.)

	Estimates
Machine	Life	Residual Value				Depreciation Method
A	5 years		$	1,300		Straight-line
B	20,000 hours			900		Units-of-production
C	10 years			1,700		Double-declining-balance

Answer 1

	Grillo Industries
	Cost of Each Machine
		Machine A	Machine B	Machine C
	Cost of the Assets	9300	38500	22300
	Installation Cost	950	2400	1500
	Renovation cost prior to use	750	2000	2500
	Total Cost	11000	42900	26300
		Machine A	Machine B	Machine C
	Cost of Assets	$       11,000.00	42900	26300
	Residual Value	$          1,300.00	900	1700
	Estimated Useful life	5 Years	20,000 Hours	10 Years
	Machine A
	Straight Line Depreciation on Machinery A=(Cost-Residual value)/Useful life)=($11000-$1300)/5 Years	$          1,940.00
	Machine B
(c )	Unit of Activity Method
	Cost	$       42,900.00
	Residual value	$             900.00
	Actual Operating Hours	20000	Hours
	Machine Hours usage	8000	Hours
	Depreciation Rate=($42900-$900)/20000 Hours	2.1
	Depreciation(8000 Hours *$2.1)	$       16,800.00
	Double Declining Balance Method
	Cost of Assets	$       26,300.00
	Salvage Value	$          1,700.00
	Estimated Useful life	10	Years
	Depreciation Rate=	(1/useful life)*200%
	Depreciation Rate=	0.1
	Double Declining Rate	0.2
	Double Declining Rate	20.00%
	Depreciation=($26300*20%)	5,260.00
	Journal Entry
	Account	Debit	Credit
	Depreciation-Machine A	$          1,940.00
	To Accumulated Depreciation-Machinery A		$                 1,940.00
	Machiner B
	Depreciation-Machine B	$       16,800.00
	To Accumulated Depreciation-Machinery B		$              16,800.00
	Machine C
	Depreciation-Machine C	$          5,260.00
	To Accumulated Depreciation-Machinery C		$                 5,260.00