You are a staff accountant in a CPA firm. Your manager has asked you to provide a report containing accounting information on the following 3 clients:
Global Inc. purchased a machine and incurred the following expenditures:
|
Purchase price
|
$20,000
|
|
Freight costs
|
$1,000
|
|
Sales tax
|
$2,000
|
|
Insurance on shipment
|
$200
|
|
Insurance for the first year on the machine
|
$500
|
|
Installation of the machine
|
$2,000
|
- Calculate the cost to be capitalized.
- Make an entry that will show which expenses will be capitalized when recording the machine on the books.
- Show the entry that will be recorded to expense the cost that will not be capitalized.
Brands Resources traded an old machine for a new machine. The book value of the old machine was $150,000 (original cost $320,000, less accumulated depreciation of $170,000). The fair value was $180,000. Brands Resources paid $20,000 to complete the exchange.
- Prepare the journal entry to record the exchange.
Reliable Company purchased a machine on January 1, 2008 at a net cost of $85,000. At the end of the 4-year life, it expects the machine will have a salvage value of $5,000. It also estimates that the machine will run for 10,000 hours during its 4-year life. The company has a fiscal year that ends on December 31.
|
Year
|
Machine hours
|
|
2008
|
2,000
|
|
2009
|
3,000
|
|
2010
|
1,000
|
|
2011
|
4,000
|
- Calculate the depreciation under the straight line method.
- Calculate the depreciation under the double declining method.
- Calculate the depreciation under the units of production method.