Problem: The Effects of Differing Depreciation Methods
Total Workout, Inc. purchased three machines from Ace Used Equipment at the beginning of the year. All three were used machines that had to be overhauled and installed before they were put into use. The costs of the machines and their renovation and installation are shown in Table 1 below:
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Problem 2, Table 1: Equipment Costs
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Account
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Machine A
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Machine B
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Machine C
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Amount paid for asset
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$21,000
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$30,750
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$8,000
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Installation cost
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$500
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$1,000
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$200
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Renovation costs prior to use
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$2,000
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$1,000
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$1,500
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By the end of the first year, each machine had been operating 4,800 hours. Depreciation estimates are shown in Table 2 below:
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Problem 2, Table 2: Equipment Depreciation
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Machine
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Life
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Residual Value
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Depreciation Method
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A
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5 years
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$1,000
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Straight-line
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B
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60,000 hours
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$2,000
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Units-of-production
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C
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4 years
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$1,500
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Double-declining balance
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Using the data provided above, complete the following:
1. Compute the cost of each machine.
2. Give the entry to record depreciation expense at the end of the first year, using all three depreciation methods listed in Table 2.