Accounting Finance 6
On 1 Jan 2015, Evers Company Purchased the following two machines for use in its production process.
Machine A: The cash price of this machine was $48,000. Related expenditures included: sales tax $1,700, shipping costs $150, insurance during shipping $80, installation and testing costs $70, and $100 of oil and lubricants to be used with the machinery during its first yeaer of operations. Evers estimates that the useful life of the machine is 5 years with a $5,000 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 yeas with a $10,000 salvage value remaining at the end of that time period.
Instructions:
a) Prepare the following for Machine A.
a. The journal entry to record its purchase on 1 January ‘15
b. The journal entry to record annual depreciation at 31 Dec ‘15
b) Calculate the amount of depreciation expense that Evers should record for Machine B each year of its useful life under the following assumptions.
a. Evers uses the straight-line method of depreciation
b. Evers uses the declining-balance method. The rate used is twice the straight-line rate.
c. Evers uses the units-of-activity method and estimates that the useful life of the machine is 125,000 units. Actual usage is as follows 2105, 45,000 units; 2016, 35,000 units; 2017, 25,000 units; 2018, 20,000 units.
c) Which method used to calculate depreciation on Machine B reports the highest amount of depreciation expense in year 1 (2015)? The highest amount in year 4 (2018)? The highest total amount over the 4-year period?
