Question

On January 1, 2017, Evers Company purchased the following two machines for use in its production process. Machine A: The cash price of this machine was $52,000. Related expenditures included: sales tax $3,100, shipping costs $200, insurance during shipping $120, installation and testing costs $50, and $150 of oil and lubricants to be used with the machinery during its first year of operations. Evers estimates that the useful life of the machine is 5 years with a $5,500 salvage value remaining at the end of that time period. Assume that the straight-line method of depreciation is used. Machine B: The recorded cost of this machine was $180,000. Evers estimates that the useful life of the machine is 4 years with a $10,200 salvage value remaining at the end of that time period.

Please do the following:

1. Prepare the following for Machine A. (Round answers to 0 decimal places, e.g. 5,125. Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

		The journal entry to record its purchase on January 1, 2017.
2.		The journal entry to record annual depreciation at December 31, 2017. 2. Calculate the amount of depreciation expense that Evers should record for Machine B each year of its useful life under the following assumptions. (Round depreciation cost per unit to 2 decimal places, e.g. 12.25. Round final answers to 0 decimal places, e.g. 2,125.) Evers uses the straight-line method of depreciation. Evers uses the declining-balance method. The rate used is twice the straight-line rate. Evers uses the units-of-activity method and estimates that the useful life of the machine is 135,150 units. Actual usage is as follows: 2017, 48,000 units; 2018, 38,000 units; 2019, 28,000 units; 2020, 21,150 units. Which method used to calculate depreciation on Machine B reports the highest amount of depreciation expense in year 1 (2017)? (Declining-balance Method, Straight Line method, Units of activity method, or all of the above) The highest amount in year 4 (2020)? The highest total amount over the 4-year period?

Answer 1

a) The journal entry to record annual depreciation at December 31, 2017
						In $
Particulars					Debit	Credit
1. Depreciation on Machinery A    A/c                        Dr.					9994
To Accumulated Depreciation A/c						9994
Notes:
1. Purchase cost o machinery to be recorded = [52000+3100+200+120+50]
		= 55470
2. Depreciation                                                              = [(55470-5500)/5]
		=	9994
b)
	2017	2018	2019	2020
Straight-line method	42450	42450	42450	42450
Declining-balance method	90000	45000	22500	11250
Units-of-activity method	60306	47743	35179	26572
i) Declining-balance method provides the highest amount of depreciation expense in year 1 (2017)
ii) The highest amount in year 4 (2020) = 42450
iii) The highest total amount over the 4-year period=169800
Notes:
1. Rate used is twice the straight-line rate   = 42450/169800*100					25%
		= 25%*2			50%
2. units-of-activity method calculations
a. (48000/135150)*169800
b. (38000/135150)*169800
c. (28000/135150)*169800
d. (21150/135150)*169800