Compute depreciation under different methods. (LO 2) (a) (2) $14,000 P9-3B On January 1, 2020, Bourgeois Company purchased the following two machines for use in its production process. Machine A: Machine B: Instructions The cash price of this machine was $58,000. Related expenditures included: sales tax $2,750, shipping costs $100, insurance during shipping $75, installation and testing costs $75, and $90 of oil and lubricants to be used with the machinery during its first year of operation. Dill estimates that the useful life of the machine is 4 years with a $5,000 salvage value remaining at the end of that time period. The recorded cost of this machine was $120,000.Dill 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. (a) Prepare the following for machine A. (1) The journal entry to record its purchase on January 1, 2020. (2) The journal entry to record annual depreciation at December 31, 2020, assuming the straight-line method of depreciation is used. (b) Calculate the amount of depreciation expense that Bourgeois should record for Machine B each year of its useful life under the following assumption. (1) Bourgeois uses the straight-line method of depreciation. (2) Bourgeois uses the declining-balance method. The rate used is twice the straight-line rate. (3) Bourgeois uses the units-of-activity method and estimates the useful life of the machine is 25,000 units. Actual usage is as follows: 2020, 5,500 units; 2021, 7,000 units; 2022, 8,000 units; 2023, 4,500 units. (c) Which method used to calculate depreciation on Machine B reports the lowest amount of depreciation expense in year 1 (2020)? The lowest amount in year 4 (2023)? The lowest total amount over the 4-year period?
Compute depreciation under different methods. (LO 2) (a) (2) $14,000 P9-3B On January 1, 2020, Bourgeois Company purchased the following two machines for use in its production process. Machine A: Machine B: Instructions The cash price of this machine was $58,000. Related expenditures included: sales tax $2,750, shipping costs $100, insurance during shipping $75, installation and testing costs $75, and $90 of oil and lubricants to be used with the machinery during its first year of operation. Dill estimates that the useful life of the machine is 4 years with a $5,000 salvage value remaining at the end of that time period. The recorded cost of this machine was $120,000.Dill 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. (a) Prepare the following for machine A. (1) The journal entry to record its purchase on January 1, 2020. (2) The journal entry to record annual depreciation at December 31, 2020, assuming the straight-line method of depreciation is used. (b) Calculate the amount of depreciation expense that Bourgeois should record for Machine B each year of its useful life under the following assumption. (1) Bourgeois uses the straight-line method of depreciation. (2) Bourgeois uses the declining-balance method. The rate used is twice the straight-line rate. (3) Bourgeois uses the units-of-activity method and estimates the useful life of the machine is 25,000 units. Actual usage is as follows: 2020, 5,500 units; 2021, 7,000 units; 2022, 8,000 units; 2023, 4,500 units. (c) Which method used to calculate depreciation on Machine B reports the lowest amount of depreciation expense in year 1 (2020)? The lowest amount in year 4 (2023)? The lowest total amount over the 4-year period?
Intermediate Accounting: Reporting And Analysis
3rd Edition
ISBN:9781337788281
Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach
Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach
Chapter11: Depreciation, Depletion, Impairment, And Disposal
Section: Chapter Questions
Problem 14P: Hunter Company purchased a light truck on January 2, 2019 for 18,000. The truck, which will be used...
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Depreciation Methods
The word "depreciation" is defined as an accounting method wherein the cost of tangible assets is spread over its useful life and it usually denotes how much of the assets value has been used up. The depreciation is usually considered as an operating expense. The main reason behind depreciation includes wear and tear of the assets, obsolescence etc.
Depreciation Accounting
In terms of accounting, with the passage of time the value of a fixed asset (like machinery, plants, furniture etc.) goes down over a specific period of time is known as depreciation. Now, the question comes in your mind, why the value of the fixed asset reduces over time.
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Transcribed Image Text:Compute depreciation
under different
methods.
(LO 2)
(a) (2) $14,000
P9-3B On January 1, 2020, Bourgeois Company purchased the following two machines
for use in its production process.
Machine A:
Machine B:
Instructions
The cash price of this machine was $58,000. Related expenditures
included: sales tax $2,750, shipping costs $100, insurance during shipping
$75, installation and testing costs $75, and $90 of oil and lubricants to be
used with the machinery during its first year of operation. Dill estimates
that the useful life of the machine is 4 years with a $5,000 salvage value
remaining at the end of that time period.
The recorded cost of this machine was $120,000.Dill 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.
(a) Prepare the following for machine A.
(1) The journal entry to record its purchase on January 1, 2020.
(2) The journal entry to record annual depreciation at December 31, 2020, assuming
the straight-line method of depreciation is used.
(b) Calculate the amount of depreciation expense that Bourgeois should record for
Machine B each year of its useful life under the following assumption.
(1) Bourgeois uses the straight-line method of depreciation.
(2) Bourgeois uses the declining-balance method. The rate used is twice the
straight-line rate.
(3) Bourgeois uses the units-of-activity method and estimates the useful life of the
machine is 25,000 units. Actual usage is as follows: 2020, 5,500 units; 2021,
7,000 units; 2022, 8,000 units; 2023, 4,500 units.
(c) Which method used to calculate depreciation on Machine B reports the lowest
amount of depreciation expense in year 1 (2020)? The lowest amount in year 4
(2023)? The lowest total amount over the 4-year period?
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