Response to the following problem:
Fox Creek Machining Ltd. purchased a cutting machine at the beginning of 2016 for $46,000. Fox Creek paid additional charges of $1,200 and $2,800 for freight and installation, respectively. It paid $1,000 to have the building in which the machine was housed suitably altered. Residual value was $2,000. The company uses the ½ year rule for calculating depreciation expense in the year of acquisition and disposal.
Required:
1. Calculate the capitalized cost of the machine.
2. Record the adjusting entry for depreciation expense that would be calculated for 2016, 2017, and 2018 using
a. straight-line method (with a useful life of three years)
b. double-declining balance method.
3. On January 1, 2017 Fox Creek revised the estimated useful life of the machine from a total of three years to a total of five years. Residual value remained at $2,000. Calculate the depreciation that should be recorded in 2017, 2018, 2019 and 2020 using the straight-line method of depreciation.