O’Connor Company ordered a machine on January 1 at a purchase price of $90,000. On the...

O’Connor Company ordered a machine on January 1 at a purchase price of $90,000. On the date of delivery, January 2, the company paid $23,000 on the machine and signed a long-term note payable for the balance. On January 3, it paid $900 for freight on the machine. On January 5, O’Connor paid cash for installation costs relating to the machine amounting to $5,400. On December 31 (the end of the accounting period), O’Connor recorded depreciation on the machine using the straight-line method with an estimated useful life of 10 years and an estimated residual value of $9,600.

Required:

Indicate the effects (accounts, amounts, and + for increase, − for decrease) of each transaction (on January 1, 2, 3, and 5) on the accounting equation.
Compute the acquisition cost of the machine.
Compute the depreciation expense to be reported for the first year.
What should be the book value of the machine at the end of the second year?

Expert Solution

ekkarill92 answered 2 years ago

Adelphi Company purchased a machine on January 1, 2017, for $90,000. The machine was estimated to...

Adelphi Company purchased a machine on January 1, 2017, for $90,000. The machine was estimated to have a service life of ten years with an estimated residual value of $5,000. Adelphi sold the machine on January 1, 2021 for $30,000. Adelphi uses the double declining method for depreciation. Using this information, how much is the gain or (loss) for the equipment sale entry made on January 1, 2021. Enter a loss as a negative number.

1. On January 1, 2013, VHF Industries acquired a machine and financed the purchase price of...

1. On January 1, 2013, VHF Industries acquired a machine and financed the purchase price of this acquisition by issuing a 4-year loan to the vendor. The face value of the loan is $8,000,000. The loan requires VHF to make 4 annual installment payments of $2,100,990; each payment is due December 31 starting on December 31, 2013. VHF chose to finance this purchase using the non-cash loan, but VHF could have purchased the machine for a cash price of $6,074,700....

Simmons Company is considering the purchase price of a new floor machine. The purchase price of...

Simmons Company is considering the purchase price of a new floor machine. The purchase price of the equipment is $420,000 and it is expected to have a useful life of 7 years with no salvage value. The company uses straight line depreciation and pays income taxes at a rate of 25%. If the company requires that all new equipment investments pay for themselves within 3 years, how much annual cash operating savings must the floor machine generate, if it is...

Aurora Company is considering the purchase of a new machine. The invoice price of the machine...

Aurora Company is considering the purchase of a new machine. The invoice price of the machine is $123,000, freight charges are estimated to be $4,000, and installation costs are expected to be $5,000. Salvage value of the new equipment is expected to be zero after a useful life of 5 years. Existing equipment could be retained and used for an additional 5 years if the new machine is not purchased. At that time, the salvage value of the equipment would...

McPherson Company must purchase a new milling machine. The purchase price is $50,000, including installation.

McPherson Company must purchase a new milling machine. The purchase price is $50,000, including installation. The machine has a tax life of 5 years, and it can be depreciated according to the following rates. The firm expects to operate the machine for 4 years and then to sell it for $12,500. If the marginal tax rate is 40%, what will the after-tax salvage value be when the machine is sold at the end of Year 4?

The Ballard Company purchased equipment for $90,000 on January 1, 2013 that is expected to have...

The Ballard Company purchased equipment for $90,000 on January 1, 2013 that is expected to have a useful life of 4 years at which time it will have a salvage value of $10,000. If the company uses the straight-line method of depreciation, what would the account balance of Accumulated Depreciation be at the end of 2015?

ABC is considering the purchase of an $80,000 machine on january 1, 2015. It will have...

ABC is considering the purchase of an $80,000 machine on january 1, 2015. It will have a 4 year life with no estimated salvage value.$1 line depreciation will be issued. the net cash income is estimated to be $30,000/year. The hurdle rate is 12% and the income tax rate is 40% Hint: (This project is unacceptable). 1. payback ( rounded to one decimal place) is estimated to be a. 2.1 b. 3.1 c. 4.1 d. 5.1 2. The accounting rate...

A firm is considering the purchase of a new machine at a price of $108,000. The machine...

A firm is considering the purchase of a new machine at a price of $108,000. The machine falls into the three-year MACRS class. If the new machine is acquired, the firm's investment in net working capital will immediately increase by $15,000 and then remain at that level throughout the life of the project. At the end of 3 years, the new machine can be sold for $5,000. Earnings before depreciation, interest and taxes (EBDIT) are expected to be as follows with...

A firm is considering the purchase of a new machine at a price of $150,000. The machine...

A firm is considering the purchase of a new machine at a price of $150,000. The machine falls into the three-year MACRS class. If the new machine is acquired, the firm's investment in net working capital will immediately increase by $10,000 and then remain at that level throughout the life of the project. At the end of 3 years, the new machine can be sold for $16,000. Earnings before depreciation, interest and taxes (EBDIT) are expected to be as follows with...

A firm is considering the purchase of a new machine at a price of $120,000. The machine...

A firm is considering the purchase of a new machine at a price of $120,000. The machine falls into the three-year MACRS class. If the new machine is acquired, the firm's investment in net working capital will immediately increase by $15,000 and then remain at that level throughout the life of the project. At the end of 3 years, the new machine can be sold for $5,000. Earnings before depreciation, interest and taxes (EBDIT) are expected to be as follows with...

Question