Montana Oil Company, which prepares financial statements on a calendar year basis, purchased new drilling equipment on July 1, 2003. A breakdown of the cost follows:
|
Cost of drilling equipment . |
$75,000 |
|
Cost of cement platform |
25,000 |
|
Installation charges |
13,000 |
|
Freight costs for drilling equipment |
2,000 |
|
Total |
$115,000 |
Assuming that the estimated life of the drilling equipment is 10 years and its salvage value is $5,000:
1. Record the purchase on July 1, 2003.
2. Assume that the drilling equipment was recorded at a total cost of $95,000. Calculate the depreciation expense for 2003 using the following methods:
a. Sum of the years digits.
b. Double declining balance.
c. 150% declining balance.
3. Prepare the journal entry to record the depreciation for 2003 in accordance with 2(a).