Western Oil Company, which prepares financial statements on a calendar year basis, purchased new drilling equipment on July 1, 2003, using check numbers 1015 and 1016. The check totals are shown here, along with a breakdown of the charges.
|
1015 (Payee Oil Equipment, Inc.): |
|
|
Cost of drilling equipment |
$75,000 |
|
Cost of cement platform |
25,000 |
|
Installation charges |
13,000 |
|
Total |
$113,000 |
|
1016 (Payee Red Ball Freight): |
|
|
Freight costs for drilling equipment. |
$2,000 |
Assume that the estimated life of the drilling equipment is 10 years and its salvage value is $5,000.
1. Record the disbursements on July 1, 2003, assuming that no entry had been recorded for the drilling equipment.
2. Disregarding the information given about the two checks, assume that the drilling equipment was recorded at a total cost of $95,000. Calculate the depreciation expense for 2003 using the straight line method.