Question 1: On January 1, 2020, Concord Company purchased the following two machines for use in its production process.
Machine A: The cash price of this machine was $37,500. Related expenditures included: sales tax $2,000, shipping costs $150, insurance during shipping $110, installation and testing costs $120, and $100 of oil and lubricants to be used with the machinery during its first year of operations. Concord estimates that the useful life of the machine is 5 years with a $4,500 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. Concord estimates that the useful life of the machine is 4 years with a $10,200 salvage value remaining at the end of that time period.
Required:
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?
B. Calculate the amount of depreciation expense that Concord should record for Machine B each year of its useful life under the following assumptions.
1. Concord uses the straight-line method of depreciation?
2. Concord uses the declining-balance method. The rate used is twice the straight-line rate?
3. Concord uses the units-of-activity method and estimates that the useful life of the machine is 141,500 units. Actual usage is as follows: 2020, 49,500 units; 2021, 39,000 units; 2022, 28,500 units; 2023, 24,500 units.
4. Which method used to calculate depreciation on Machine B reports the highest amount of depreciation expense in year 1 (2020)?
5. The highest amount in year 4 (2023)?
6. The highest total amount over the 4-year period?
Question 2: At the beginning of 2018, Bridgeport Company acquired equipment costing $187,400. It was estimated that this equipment would have a useful life of 6 years and a salvage value of $18,740 at that time. The straight-line method of depreciation was considered the most appropriate to use with this type of equipment. Depreciation is to be recorded at the end of each year.
During 2020 (the third year of the equipment's life), the company's engineers reconsidered their expectations, and estimated that the equipment's useful life would probably be 7 years (in total) instead of 6 years. The estimated salvage value was not changed at that time. However, during 2023 the estimated salvage value was reduced to $5,000.
Required:
1. How do I Indicate how much depreciation expense should be recorded each year for this equipment, by completing the following table?
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Year
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Depreciation Expense
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Accumulated Depreciation
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2018
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2019
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2020
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2021
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2022
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2023
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2024
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Question 3: Flounder Co. has equipment that cost $84,000 and that has been depreciated $49,500.
Required: Record the disposal under the following assumptions.
a. It was scrapped as having no value.
b. It was sold for $19,000.
c. It was sold for $37,800.
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