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	$	9,200		$	38,400		$	22,200
Installation costs		900			2,300			1,400
Renovation costs prior to use		700			1,900			2,400
Repairs after production began		700			800			900

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		$	1,200		Straight-line
B	20,000	hours			1,600		Units-of-production
C	10	years			1,600		Double-declining-balance

Answer 1

Calculation of Cost of Asset each machine
	Machine - A	Machine - B	Machine - C
Purchase cost of asset	9200	38400	22200
Installation cost	900	2300	1400
Renovation cost	700	1900	2400
Total cost	10800	42600	26000
Note:- Repairs after installation is revenue repairs will not be included in the cost of machinery
Depreciation under Straight line method - Machine-A
Cost of asset	10,800
Salvage value	1,200
Life of Asset	5	Years
Depreciation per year
(Cost of asset - Salvage value)/Life of asset
(10800-1200)/5	1,920
Journal entry	Dr	Cr
Depreciation A/c Dr	1,920
To Machine		1,920
Depreciation under units of production method
Cost of asset	42,600
Residual value	1,600
Net Value	41,000
Total hours	20,000
Current period usage hrs	8,000
Depreciation
(8000/20,000) X 42600	16,400
Journal Entry
Depreciation A/c Dr	16,400
To Machine A/c		16,400
Depreciation under double declining balance method
(Cost - Salvage value)/ useful life * 2
(26000-1600)/10* 2 = 4880
Journal Entry
Depreciation A/c Dr	4,880
To Machine A/c		4,880