# Determine The Machine Depreciation

10.4.

Ramirez Company installs a computerized manufacturing machine in its factory at the beginning of the year at a cost of \$43,500. The machine's useful life is estimated at 10 years, or 385,000 units of product, with a \$5,000 salvage value. During its second year, the machine produces 32,500 units of product.

Determine the machine’s second-year depreciation using the units-of-production method.

 Units-of-production Depreciation Choose Numerator: / Choose Denominator: = Annual Depreciation Expense Cost minus salvage / Total units of production = Depreciation expense per unit \$38,500 / 385,000 = \$0.10 Year Annual Production (units) Depreciation Expense 2 32,500 \$3,250

2. Ramirez Company installs a computerized manufacturing machine in its factory at the beginning of the year at a cost of \$43,500. The machine's useful life is estimated at 10 years, or 385,000 units of product, with a \$5,000 salvage value. During its second year, the machine produces 32,500 units of product.

 Determine the machine’s second-year depreciation using the double-declining-balance method.

 Double-declining-balance Depreciation Choose Factors: x Choose Factor(%) = Annual Depreciation Expense Beginning book value x Double the straight-line rate = Depreciation expense First year's depreciation \$43,500 x 20% = \$8,700 Second year's depreciation \$34,800 x 20% = \$6,960

3.

 In early January 2015, NewTech purchases computer equipment for \$154,000 to use in operating activities for the next four years. It estimates the equipment’s salvage value at \$25,000.
 Prepare a table showing depreciation and book value for each of the four years assuming straight-line depreciation.

 Straight-Line Depreciation Choose Numerator: / Choose Denominator: = Annual Depreciation Expense Cost minus salvage / Estimated useful life (years) = Depreciation expense \$129,000 / 4 = \$32,250 Year Annual Depreciation Year-End Book Value 2015 \$32,250 \$121,750 2016 32,250 89,500 2017 32,250 57,250 2018 32,250 25,000 Total \$129,000

4. On April 1, 2014, Cyclone’s Backhoe Co. purchases a trencher for \$280,000. The machine is expected to last five years and have a salvage value of \$40,000.

 Compute depreciation expense for both years ending December 2014 and 2015 assuming the company uses the straight-line method.

 Straight-line, partial-year depreciation Choose Numerator: / Choose Denominator: = Annual Depreciation Cost minus salvage / Estimated useful life (years) = Annual depreciation \$240,000 / 5 = \$48,000 Year Annual Depreciation x Fraction of Year = Depreciation Expense 2014 \$48,000 x 9/12 \$36,000 2015 \$48,000 x 12/12 \$48,000

5. On April 1, 2014, Cyclone’s Backhoe Co. purchases a trencher for \$280,000. The machine is expected to last five years and have a salvage value of \$40,000. Compute depreciation expense for both years ending December 2014 and 2015 assuming the company uses the double-declining-balance method.

 Double-declining-balance, partial-year depreciation Depreciation for the Period End of Period Annual Period Beginning of Period Book Value Depreciation Rate Partial Year Depreciation Expense Accumulated Depreciation Book Value 2014 \$280,000 40% 9/12 \$84,000 \$84,000 \$196,000 2015 \$196,000 40% 12/12 \$78,400 \$162,400 \$117,600

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6.
Apex Fitness Club uses straight-line depreciation for a machine costing \$23,860, with an estimated four year life and a \$2,400 salvage value. At the beginning of the third year, Apex determines that the machine has three more years of remaining useful life, after which it will have an estimated \$2,000 salvage value.

 (1) Compute the machine’s book value at the end of its second year.

 Book Value at the End of Year 2: Cost \$23,860 Accumulated depreciation 2 years (10,730) Book value at point of revision 13,130
 (2) Compute the amount of depreciation for each of the final three years given the revised estimates.

 Revised Depreciation (Years 3-5) Book value at point of revision \$13,130 Revised salvage value (2,000) Remaining depreciable cost 11,130 Years of life remaining 3 Revised annual depreciation years 3-5 \$3,710

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7.

 Oki Company pays \$264,000 for equipment expected to last four years and have a \$29,000 salvage value. Prepare journal entries to record the following costs related to the equipment.
 1 During the second year of the equipment’s life, \$22,000 cash is paid for a new component expected to increase the equipment’s productivity by 10% a year. 2 During the third year, \$6,250 cash is paid for normal repairs necessary to keep the equipment in good working order. 3 During the fourth year, \$14,870 is paid for repairs expected to increase the useful life of the equipment from four to five years.
 Transaction General Journal Debit Credit 1 Equipment 22,000 Cash 22,000 2 Repairs expense 6,250 Cash 6,250 3 Equipment 14,870 Cash 14,870

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8.
On April 2, 2015, Montana Mining Co. pays \$3,721,000 for an ore deposit containing 1,525,000 tons. The company installs machinery in the mine costing \$213,500, with an estimated seven-year life and no salvage value. The machinery will be abandoned when the ore is completely mined. Montana begins mining on May 1, 2015, and mines and sells 166,200 tons of ore during the remaining eight months of 2015.

 Prepare the December 31, 2015, entries to record both the ore deposit depletion and the mining machinery depreciation. Mining machinery depreciation should be in proportion to the mine’s depletion. (Round your unit depreciation and depletion rates to 2 decimal places.)
 Date General Journal Debit Credit Dec 31 Depletion expense—Mineral deposit 405,528 Accumulated depletion—Mineral deposit 405,528 Dec. 31 Depreciation expense—Machinery 23,268 Accumulated depreciation—Machinery 23,268

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10.19.
Milano Gallery purchases the copyright on an oil painting for \$418,000 on January 1, 2015. The copyright legally protects its owner for 10 more years. The company plans to market and sell prints of the original for 11 years.

Prepare entries to record the purchase of the copyright on January 1, 2015, and its annual amortization on December 31, 2015.

 Date General Journal Debit Credit Jan 01 Copyright 418,000 Cash 418,000 Dec 31 Amortization expense—Copyright 41,800 Accumulated amortization—Copyright 41,800

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Question 10-3A
[The following information applies to the questions displayed below.]

 In January 2015, Mitzu Co. pays \$2,600,000 for a tract of land with two buildings on it. It plans to demolish Building 1 and build a new store in its place. Building 2 will be a company office; it is appraised at \$644,000, with a useful life of 20 years and a \$60,000 salvage value. A lighted parking lot near Building 1 has improvements (Land Improvements 1) valued at \$420,000 that are expected to last another 12 years with no salvage value. Without the buildings and improvements, the tract of land is valued at \$1,736,000. The company also incurs the following additional costs:
 Cost to demolish Building 1 \$ 328,400 Cost of additional land grading 175,400 Cost to construct new building (Building 3), having a useful life     of 25 years and a \$392,000 salvage value 2,202,000 Cost of new land improvements (Land Improvements 2) near Building 2     having a 20-year useful life and no salvage value 164,000

10.

 Required:
 1 Allocate the costs incurred by Mitzu to the appropriate columns and total each column.

 Allocation of Purchase Price Appraised Value Percent of Total Appraised Value x Total Cost of Acquisition = Apportioned Cost Land \$1,736,000 62% x \$2,600,000 = \$1,612,000 Building 2 644,000 23% x 2,600,000 = 598,000 Land Improvements 1 420,000 15% x 2,600,000 = 390,000 Totals \$2,800,000 100% \$2,600,000 Land Building 2 Building 3 Land Improvements 1 Land Improvements 2 Purchase Price \$1,612,000 \$598,000 \$0 \$390,000 \$0 Demolition 328,400 0 0 0 0 Land grading 175,400 0 0 0 0 New building (Construction cost) 0 0 2,202,000 0 0 New improvements cost 0 0 0 0 164,000 Totals \$2,115,800 \$598,000 \$2,202,000 \$390,000 \$164,000

11.

 2 Prepare a single journal entry to record all the incurred costs assuming they are paid in cash on January 1, 2015.
 Date General Journal Debit Credit Jan 01 Land 2,115,800 Building 2 598,000 Building 3 2,202,000 Land improvements 1 390,000 Land improvements 2 164,000 Cash 5,469,800

12.

 3 Using the straight-line method, prepare the December 31 adjusting entries to record depreciation for the 12 months of 2015 when these assets were in use.
 Date General Journal Debit Credit Dec 31 Depreciation expense—Building 2 26,900 Accumulated depreciation—Building 2 26,900 Dec 31 Depreciation expense—Building 3 72,400 Accumulated depreciation—Building 3 72,400 Dec 31 Depreciation expense—Land improvements 1 32,500 Accumulated depreciation—Land improvements 1 32,500 Dec 31 Depreciation expense—Land improvements 2 8,200 Accumulated depreciation—Land improvements 2 8,200

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10.4A.

 Champion Contractors completed the following transactions and events involving the purchase and operation of equipment in its business.
 2014 Jan. 1 Paid \$287,600 cash plus \$11,500 in sales tax and \$1,500 in transportation (FOB shipping point) for a new loader. The loader is estimated to have a four-year life and a \$20,600 salvage value. Loader costs are recorded in the Equipment account. Jan. 3 Paid \$4,800 to enclose the cab and install air-conditioning in the loader to enable operations under harsher conditions. This increased the estimated salvage value of the loader by another \$1,400. Dec. 31 Recorded annual straight-line depreciation on the loader.
 2015 Jan. 1 Paid \$5,400 to overhaul the loader’s engine, which increased the loader’s estimated useful life by two years. Feb. 17 Paid \$820 to repair the loader after the operator backed it into a tree. Dec. 31 Recorded annual straight-line depreciation on the loader.
 Required: Prepare journal entries to record these transactions and events.
 Date General Journal Debit Credit Jan 01, 2014 Equipment 300,600 Cash 300,600 Jan 03, 2014 Equipment 4,800 Cash 4,800 Dec 31, 2014 Depreciation expense—Equipment 70,850 Accumulated depreciation—Equipment 70,850 Jan 01, 2015 Equipment 5,400 Cash 5,400 Feb 17, 2015 Repairs expense—Equipment 820 Cash 820 Dec 31, 2015 Depreciation expense—Equipment 43,590 Accumulated depreciation—Equipment 43,590

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Question 10-6A
[The following information applies to the questions displayed below.]

Onslow Co. purchases a used machine for \$178,000 cash on January 2 and readies it for use the next day at an \$2,840 cost. On January 3, it is installed on a required operating platform costing \$1,160, and it is further readied for operations. The company predicts the machine will be used for six years and have a \$14,000 salvage value. Depreciation is to be charged on a straight-line basis. On December 31, at the end of its fifth year in operations, it is disposed of.

14.

 Required: 1. Prepare journal entries to record the machine’s purchase and the costs to ready and install it. Cash is paid for all costs incurred.
 Date General Journal Debit Credit Jan 02 Machinery 178,000 Cash 178,000 Jan 03 Machinery 2,840 Cash 2,840 Jan 03 Machinery 1,160 Cash 1,160

15.

 2 Prepare journal entries to record depreciation of the machine at December 31.
 (a) Its first year in operations.
 Date General Journal Debit Credit Dec 31 Depreciation expense—Machinery 28,000 Accumulated depreciation—Machinery 28,000
 (b) The year of its disposal.
 Date General Journal Debit Credit Dec 31 Depreciation expense—Machinery 28,000 Accumulated depreciation—Machinery 28,000

16.

 3 Prepare journal entries to record the machine’s disposal under each of the following separate assumptions:
 (a) It is sold for \$15,000 cash.
 Date General Journal Debit Credit Dec 31 Cash 15,000 Loss on sale of machinery 27,000 Accumulated depreciation—Machinery 140,000 Machinery 182,000
 (b) It is sold for \$50,000 cash.
 Date General Journal Debit Credit Dec 31 Cash 50,000 Accumulated depreciation—Machinery 140,000 Machinery 182,000 Gain on sale of machinery 8,000
 (c) It is destroyed in a fire and the insurance company pays \$30,000 cash to settle the loss claim.
 Date General Journal Debit Credit Dec 31 Cash 30,000 Accumulated depreciation—Machinery 140,000 Loss from fire 12,000 Machinery 182,000

10.2A.

 A machine costing \$257,500 with a four-year life and an estimated \$20,000 salvage value is installed in Luther Company’s factory on January 1. The factory manager estimates the machine will produce 475,000 units of product during its life. It actually produces the following units: 220,000 in 1st year, 124,600 in 2nd year, 121,800 in 3rd year, 15,200 in 4th year. The total number of units produced by the end of year 4 exceeds the original estimate—this difference was not predicted. (The machine must not be depreciated below its estimated salvage value.)
 Required: Compute depreciation for each year (and total depreciation of all years combined) for the machine under each depreciation method. (Round your per unit depreciation to 2 decimal places.)

 Straight-Line Depreciation Year Depreciation Expense 1 \$59,375 2 59,375 3 59,375 4 59,375 Total \$237,500

 Units of Production Year Depreciable Units Depreciation per unit Depreciation Expense 1 220,000 \$0.50 \$110,000 2 124,600 \$0.50 62,300 3 121,800 \$0.50 60,900 4 8,600 \$0.50 4,300 Total 475,000 \$237,500

 DDB Depreciation for the Period End of Period Year Beginning of Period Book Value Depreciation Rate Depreciation Expense Accumulated Depreciation Book Value 1 \$257,500 50 % \$128,750 \$128,750 \$128,750 2 128,750 50 % 64,375 193,125 64,375 3 64,375 50 % 32,188 225,313 32,187 4 32,187 50 % 12,187 237,500 20,000 Total \$237,500

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18.

 Diaz Company owns a milling machine that cost \$250,000 and has accumulated depreciation of \$182,000. Prepare the entry to record the disposal of the milling machine on January 3 under each of the following independent situations.

 1 The machine needed extensive repairs, and it was not worth repairing. Diaz disposed of the machine, receiving nothing in return. 2 Diaz sold the machine for \$35,000 cash. 3 Diaz sold the machine for \$68,000 cash. 4 Diaz sold the machine for \$80,000 cash.
 Date General Journal Debit Credit Jan 03 Loss on disposal of milling machine 68,000 Accumulated depreciation—Milling machine 182,000 Milling machine 250,000 Jan 03 Cash 35,000 Loss on disposal of milling machine 33,000 Accumulated depreciation—Milling machine 182,000 Milling machine 250,000 Jan 03 Cash 68,000 Accumulated depreciation—Milling machine 182,000 Milling machine 250,000 Jan 03 Cash 80,000 Accumulated depreciation—Milling machine 182,000 Gain on sale of milling machine 12,000 Milling machine 250,000

10.5A.

 Yoshi Company completed the following transactions and events involving its delivery trucks.
 2014 Jan. 1 Paid \$20,515 cash plus \$1,485 in sales tax for a new delivery truck estimated to have a five-year life and a \$2,000 salvage value. Delivery truck costs are recorded in the Trucks account. Dec. 31 Recorded annual straight-line depreciation on the truck.
 2015 Dec. 31 Due to new information obtained earlier in the year, the truck’s estimated useful life was changed from five to four years, and the estimated salvage value was increased to \$2,400. Recorded annual straight-line depreciation on the truck.
 2016 Dec. 31 Recorded annual straight-line depreciation on the truck. Dec. 31 Sold the truck for \$5,300 cash.
 Required:
 Calculate depreciation for year 2015.

 Total cost \$22,000 Less accumulated depreciation (from 2014) 4,000 Book value 18,000 Less revised salvage value 2,400 Remaining cost to be depreciated 15,600 Years of life remaining 3 Total depreciation for 2015 \$5,200

Calculate book value and gain (loss) for sale of Truck on December, 2016.

 Depreciation expense (for 2014) \$4,000 Depreciation expense (for 2015) 5,200 Depreciation expense (for 2016) 5,200 Accumulated depreciation 12/31/2016 14,400 Book value of truck at 12/31/2016 Total cost \$22,000 Accumulated depreciation (14,400) Book value 12/31/2016 \$7,600 Loss on sale of truck \$2,300

Prepare journal entries to record these transactions and events.

 Date General Journal Debit Credit Jan 01, 2014 Trucks 22,000 Cash 22,000 Dec 31, 2014 Depreciation expense—Trucks 4,000 Accumulated depreciation—Trucks 4,000 Dec 31, 2015 Depreciation expense—Trucks 5,200 Accumulated depreciation—Trucks 5,200 Dec 31, 2016 Depreciation expense—Trucks 5,200 Accumulated depreciation—Trucks 5,200 Dec 31, 2016 Cash 5,300 Accumulated depreciation—Trucks 14,400 Loss on disposal of trucks 2,300 Trucks 22,000

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