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computing acquisition cost and recording depreciation under three alternative method 727278

Computing Acquisition Cost and Recording Depreciation under Three

Alternative Methods

At the beginning of the year, Oakmont Company bought three used machines from American Manufacturing, Inc. The machines immediately were overhauled, installed, and started operating. Because the machines were different, each was recorded separately in the accounts.

 

Machine A

Machine B

Machine C

Amount paid for asset

$19,600

$10,100

$9,800

Installation costs

300

500

200

Renovation costs prior to use

100

300

600

Repairs after production began

220

900

480

By the end of the first year, each machine had been operating 4,000 hours.

Required:

1. Compute the cost of each machine. Explain the rationale for capitalizing or expensing the various costs.

2. Give the journal entry to record depreciation expense at the end of year 1, assuming the following:

Machine

 

Estimates

Depreciation Method

Life

Residual Value

A

7 years

$1,100

Straight line

B

40,000 hours

900

Units of production

C

4 years

2,000

Double declining balance

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