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	$	9,600		$	38,800		$	22,600
Installation costs		850			2,700			1,800
Renovation costs prior to use		650			2,300			2,800
Repairs after production began		700			700			1,300

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:

	Estimates
Machine	Life		Residual Value				Depreciation Method
A	5	years		$	1,600		Straight-line
B	20,000	hours			1,200		Units-of-production
C	10	years			2,000		Double-declining-balance

Answer 1

Requirement 1

	Total Cost of Machine
Machine A	$    11,100.00
Machine B	$    43,800.00
Machine C	$    27,200.00

	Amount paid for asset	Installation cost	Renovation cost	Total Cost of Machine
Machine A	$     9,600.00	$        850.00	$         650.00	$    11,100.00
Machine B	$   38,800.00	$    2,700.00	$     2,300.00	$    43,800.00
Machine C	$   22,600.00	$    1,800.00	$     2,800.00	$    27,200.00

Requirement 2

Transaction	General Journal	Debit	Credit
1..	Depreciation expense	$    24,380.00
	Accumulated depreciation-Machine A		$        1,900.00
	Accumulated depreciation-Machine B		$      17,040.00
	Accumulated depreciation-Machine C		$        5,440.00
	(To record depreciation expense)

Working

Straight line Method Machine A
A	Cost	$        11,100.00
B	Residual Value	$           1,600.00
C=A - B	Depreciable base	$           9,500.00
D	Life [in years left ]	5
E=C/D	Annual SLM depreciation	$           1,900.00

Units of Production method-Machine B
A	Cost	$        43,800.00
B	Residual Value	$           1,200.00
C=A - B	Depreciable base	$        42,600.00
D	Usage in units(in Hours)	20000
E	Depreciation per hour	$                   2.13

Year	Book Value	Usage	Depreciation expense	Ending Book Value	Accumulated Depreciation
1	$          43,800.00	8000	$      17,040.00	$      26,760.00	$      17,040.00

Double declining Method-Machine C
A	Cost	$        27,200.00
B	Residual Value	$           2,000.00
C=A - B	Depreciable base	$        25,200.00
D	Life [in years]	10
E=C/D	Annual SLM depreciation	$           2,520.00
F=E/C	SLM Rate	10.00%
G=F x 2	DDB Rate	20.00%

Depreciation schedule-Double declining
Year	Beginning Book Value	Depreciation rate	Depreciation expense	Accumulated Depreciation	Ending Book Value
1	$          27,200.00	20.00%	$               5,440	$               5,440	$            21,760