At the beginning of the year, CCZ Corporation bought three used machines from Pequita Compression Incorporated. The machines immediately were overhauled, installed, and started operating. Because the machines were different from each other, each was recorded separately in the accounts. Machine A Machine B Machine C Cost of the asset $ 10,040 $ 28,340 $ 22,200 Installation costs 1,620 2,120 820 Renovation costs prior to use 620 1,420 1,620 Repairs after production began 520 420 720 By the end of the first year, each machine had been operating 7,200 hours. Required: 1-a. Compute the cost of each machine. 1-b. Which of the following should be capitalized? (Select all that apply.) 2. Prepare the journal entry to record depreciation expense at the end of year 1, assuming the following: (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.) Estimates Machine Life Residual Value Depreciation Method A 4 years $ 1,000 Straight-line B 33,200 hours 2,000 Units-of-production C 5 years 1,300 Double-declining-balance
Depreciation Methods
The word "depreciation" is defined as an accounting method wherein the cost of tangible assets is spread over its useful life and it usually denotes how much of the assets value has been used up. The depreciation is usually considered as an operating expense. The main reason behind depreciation includes wear and tear of the assets, obsolescence etc.
Depreciation Accounting
In terms of accounting, with the passage of time the value of a fixed asset (like machinery, plants, furniture etc.) goes down over a specific period of time is known as depreciation. Now, the question comes in your mind, why the value of the fixed asset reduces over time.
At the beginning of the year, CCZ Corporation bought three used machines from Pequita Compression Incorporated. The machines immediately were overhauled, installed, and started operating. Because the machines were different from each other, each was recorded separately in the accounts.
| Machine A | Machine B | Machine C | |||||||
| Cost of the asset | $ | 10,040 | $ | 28,340 | $ | 22,200 | |||
| Installation costs | 1,620 | 2,120 | 820 | ||||||
| Renovation costs prior to use | 620 | 1,420 | 1,620 | ||||||
| Repairs after production began | 520 | 420 | 720 | ||||||
By the end of the first year, each machine had been operating 7,200 hours.
Required:
1-a. Compute the cost of each machine.
1-b. Which of the following should be capitalized? (Select all that apply.)
2. Prepare the
| Estimates | |||||
| Machine | Life | Residual Value | Depreciation Method | ||
| A | 4 years | $ | 1,000 | Straight-line | |
| B | 33,200 hours | 2,000 | Units-of-production | ||
| C | 5 years | 1,300 | Double-declining-balance | ||
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