1. On January 1, 2015, Evers Company purchased the following two machines for use in its production process. Machine A: The cash price of this machine was $48,000. Related expenditures included: sales tax $1,700, shipping costs $150, insurance during shipping $80, installation and testing costs $70, and $100 of oil and lubricants to be used with the machinery during its ? rst year of operations. Evers estimates that the useful life of the machine is 5 years with a $5,000 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. Evers 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. Instructions (a) Prepare the following for Machine A.
(1) The journal entry to record its purchase on January 1, 2015.
(2) The journal entry to record annual depreciation at December 31, 2015.
(b) Calculate the amount of depreciation expense that Evers should record for Machine B each year of its useful life under the following assumptions.
(1) Evers uses the straight-line method of depreciation.
(2) Evers uses the declining-balance method. The rate used is twice the straight-line rate.
(3) Evers uses the units-of-activity method and estimates that the useful life of the machine is 125,000 units. Actual usage is as follows: 2015, 45,000 units; 2016, 35,000 units; 2017, 25,000 units; 2018, 20,000 units.
2. At December 31, 2015, Grand Company reported the following as plant assets. Land $ 4,000,000 Buildings $28,500,000 Less: Accumulated depreciation-buildings 12,100,000 16,400,000 Equipment 48,000,000 Less: Accumulated depreciation-equipment 5,000,000 43,000,000 Total plant assets $63,400,000 During 2016, the following selected cash transactions occurred. April 1 Purchased land for $2,130,000. May 1 Sold equipment that cost $750,000 when purchased on January 1, 2012. The equipment was sold for $450,000. June 1 Sold land purchased on June 1, 2006, for $1,500,000. The land cost $400,000. July 1 Purchased equipment for $2,500,000. Dec. 31 Retired equipment that cost $500,000 when purchased on December 31, 2006. No salvage value was received.
Instructions
(a) Journalize the above transactions. The company uses straight-line depreciation for buildings and equipment. The buildings are estimated to have a 50-year life and no salvage value. The equipment is estimated to have a 10-year useful life and no salvage value. Update depreciation on assets disposed of at the time of sale or retirement.
(b) Record adjusting entries for depreciation for 2016.