On January 1, 2019, 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 year 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 years with a $10,000 salvage value remaining at the end of that time period |
Instructions
- Prepare the following for Machine A
- The journal entry to record its purchase on January 1, 2019
- The journal entry to record annual depreciation at December 31, 2019.
- Calculate the amount of depreciation expense that Evers should record for Machine B each year of its useful life under the following assumptions.
- Evers uses the straight-line method of depreciation.
- Evers uses the declining-balance method. The rate used is twice the straight-line rate.
- 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: 2019, 45,000 units: 2020, 35,000 units: 2021, 25,000 units: 2022, 20,000 units.
- Which method used to calculate depreciation on Machine B reports the highest amount of depreciation expense year 1 (2019)? The highest amount in year 4 (2022)? The highest total amount over the 4-year period?
Solution
a.
For Machine A
1.
2.
b.
For Machine B
c.
--Highest depreciation in Year 1 (2019) = Declining balance $ 90000
--Highest amount in Year 4 (2022) = Straight Line
--Highest total amount over 4 year period = No matter which of the three methods is used. Total depreciation of each methods are same at 4 years period.
--Highest amount in Year 4 (2022) = Straight Line
--Highest total amount over 4 year period = No matter which of the three methods is used. Total depreciation of each methods are same at 4 years period.