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?

Price (USD)
\$