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.
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.