Computing the Acquisition Cost and Recording Depreciation under Three Alternative Methods At the beginning of the year, Ramos Inc. bought three used machines from Santaro Corporation. The machines immediately were overhauled, installed, and started operating. The machines were different; therefore, each had to be recorded separately in the accounts.
|
Machine A |
Machine B |
Machine C |
|
|
Cost of the asset |
$12,200 |
$32,500 |
$21,700 |
|
Installation costs |
800 |
1,100 |
1,100 |
|
Renovation costs prior to use |
600 |
1,400 |
1,600 |
By the end of the first year, each machine had been operating 7,000 hours.
Required:
1. Compute the cost of each machine.
2. Give the entry to record depreciation expense at the end of year 1, assuming the following:
|
ESTIMATES |
|||
|
Machine |
Life |
Residual Value |
Depreciation Method |
|
A |
8 years |
$1,000 |
Straight line |
|
B |
33,000 hours |
2,000 |
Units of production |
|
C |
5 years |
1,400 |
Double declining balance |