Question

PART I-- Peak, Inc. acquired a machine that involved the following expenditures and related factors:

Gross invoice price ……………………………………………..	$27,200
Sales tax …………………………………………………………	1,760
Cash discount taken ……………………………………………	544
Freight …………………………………………………………....	960
Assembly of machine …………………………………………..	800
Installation of machine …………………………………………	1,200
Training of employees before use ……………………	640
Required:  What will be the recorded cost of the machine?

PART II-- On January 1, 2019, Ivey Company purchased a bottle-capping machine for $160,000.  During its useful life, the company expects that the machine will cap 1,500,000 bottles.  The machine’s expected salvage value is $10,000.  During 2019, the machine capped 250,000 bottles and during 2020, the machine capped 300,000 bottles.  

Required:  Assuming units-of-production depreciation, 2020 depreciation expense is what amount?

PART III-- The cost of an asset is $1,020,000, and its residual value is $160,000. Estimated useful life of the asset is five years.

Required:   
                 1.  Compute first –year depreciation using the straight-line method.
               2.  Compute first-year and second –year depreciation using double-declining-balance method.

PART IV-- An asset was purchased for $37,000 on January 1, 2019. The asset's estimated useful life was five years, and its residual value was $9,000. The straight-line method of depreciation was used.

The asset was sold on December 31, 2019.

Required:  Compute the gain or loss on the sale of the asset and prepare the required journal entry
                   under both of the following assumptions:

                        1.  The selling price was $19,000.

                        2.  The selling price was $37,000.

PART V-- Saul Company purchased a tractor at a cost of $120,000 on January 1, 2019.  The tractor has an estimated salvage value of $20,000 and an estimated life of 8 years.

Required:  If Saul uses the straight-line method, what is the book value at January 1, 2023?

PART VI-- Steve Company purchased a tractor at a cost of $180,000.  The tractor has an estimated salvage value of $20,000 and an estimated life of 8 years, or 10,000 hours of operation.  The tractor was purchased on January 1, 2019 and was used 2,400 hours in 2019 and 2,100 hours in 2020.  On January 1, 2021, the company decided to sell the tractor for $70,000.  Steve uses the units-of-production method to account for the depreciation on the tractor.  

Required:  

            1.  Compute the book value of the tractor on January 1, 2021.

            2.  Compute the gain or loss on sale.

            3.  Prepare the journal entry to record the sale.

Answer 1

SOLUTION:-

1. Recorded Cost of Machine = Gross Invoice Price - Cash Discount + Freight + Assembly of machine + installation of machine

Recorded Cost of Machine = $27,200 - 544+ 960 +800 + 1200

Recorded Cost of Machine = $29,616

2. 2020 Depreciation = Depreciable Cost * (Bottles Capped / Total Bottles can be capped)

2020 Depreciation = 150000 * 300,000 / 1500000 = $30000

3. Straight Line Deoreciation = Depreciable Cost / Useful Life = $860000 / 5 =$172000

Double Declining balance Depreciation = Year 1 = Asset Cost Straight Line Depreciation Rate 2 = $1020000 20% 2= $408000

Double Declining balance Depreciation = Year 2 = Opening Balance Straight Line Depreciation Rate 2 = ($1020000 - 408000) 20% 2= $244800

4. Journal Entry

Date	Particulars	Debit	Credit
31 Dec 2019	Cash	19000
	Loss on Sale of Asset	12400
	Depreciation	5600
	Asset		37000

	Particulars	Debit	Credit
31 Dec 2019	Cash	37000
	Depreciation	5600
	Gain on sale of asset		5600
	Asset		37000

5. Book Value as on January 1 2023 = Base Cost - Depreciation till Dec 31 2022 = 120000 - 4 * (120000 - 20000)/8 = $70000

6. Book Value as on 1 Jan 2021 = Cost of Asset - Depreciation till 31 Dec 2020 = 180000 - (160000 * 4500 / 10000) = $108000

2. loss on sale = Book Value - Sale price = 108000 - 70000 = $38000

3.Journal entry

	Particulars	Debit	Credit
31 Dec 2019	Cash	70000
	Loss on Sale of Asset	38000
	Asset		108000

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