Problem
Namaka Inc. (Namaka) recently purchased new display cases for its retail stores. The display cases cost $152,000, taxes were $22,200 (of which $1 is refundable), delivery cost $5,200, and set-up cost $8,400. Namaka's management expects to use the display cases for five years, at which time they will be replaced. Management uses declining balance depreciation at a rate of 40 percent for the display cases and estimates that the new display cases have a residual value of $5,200.
Required:
a. Prepare the journal entry to record the purchase of the new display cases.
b. Prepare a depreciation schedule showing the depreciation expense for each of the five years Namaka expects to keep the display cases and the carrying amount of the machine at the end of each year. Assume that the display cases were purchased midway through the fiscal year and only a half-year's depreciation is to be expensed in the first year.
c. Suppose the display cases sold at the end of the third year for $25,400. Prepare the journal entry to record the sale and any other journal entries required with respect to the display cases in the third year.