On January 1, 2022, Martinez Company purchased the following two machines for use in its production process. Machine A: The cash price of this machine was $54,500. Related expenditures also paid in cash included: sales tax $2,050, shipping costs $100, insurance during shipping $110, installation and testing costs $80, and $100 of oil and lubricants to be used with the machinery during its first year of operations. Martinez estimates that the useful life of the machine is 5 years with a $4,100 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. Martinez 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. 1. For Machine A, prepare the journal entry to record its purchase on January 1, 2022 and record annual depreciation at December 31, 2022. 2. Calculate the amount of depreciation expense that Martinez should record for Machine B each year of its useful life assuming he uses the straight-line method of depreciation, declining-balance method and the units-of-activity method and estimates that the useful life of the machine is 141,500 units. Actual usage is as follows: 2022, 53,000 units; 2023, 40,000 units; 2024, 27,000 units; 2025, 21,500 units. 3. Which method used to calculate depreciation on Machine B reports the highest amount of depreciation expense in year 1 (2022) and The highest amount in year 4 (2025)? The highest total amount over the 4-year period?

Intermediate Accounting: Reporting And Analysis

3rd Edition

ISBN:9781337788281

Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Chapter11: Depreciation, Depletion, Impairment, And Disposal

Section: Chapter Questions

Problem 2MC: Vorst depreciates Asset A on the double-declining-balance method. How much depreciation expense...

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On January 1, 2022, Martinez Company purchased the following two machines for use in its production process.

Machine A:		The cash price of this machine was $54,500. Related expenditures also paid in cash included: sales tax $2,050, shipping costs $100, insurance during shipping $110, installation and testing costs $80, and $100 of oil and lubricants to be used with the machinery during its first year of operations. Martinez estimates that the useful life of the machine is 5 years with a $4,100 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. Martinez 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.

1. For Machine A, prepare the journal entry to record its purchase on January 1, 2022 and record annual depreciation at December 31, 2022.

2. Calculate the amount of depreciation expense that Martinez should record for Machine B each year of its useful life assuming he uses the straight-line method of depreciation, declining-balance method and the units-of-activity method and estimates that the useful life of the machine is 141,500 units. Actual usage is as follows: 2022, 53,000 units; 2023, 40,000 units; 2024, 27,000 units; 2025, 21,500 units.

3. Which method used to calculate depreciation on Machine B reports the highest amount of depreciation expense in year 1 (2022) and The highest amount in year 4 (2025)? The highest total amount over the 4-year period?

Prepare the following for Machine A. (Round answers to O decimal places, eg. 5,125. List all debit entries before credit entries. Credit
account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for
the account titles and enter O for the amounts.)
The journal entry to record its purchase on January 1, 2022.
The journal entry to record annual depreciation at December 31, 2022.
1.
2.
No. Account Titles and Explanation
Debit
Credit
1.
eTextbook and Media
List of Accounts
Save for Later
(b)
Calculate the amount of depreciation expense that Martinez should record for Machine Beach year of its useful life under the
following assumptions. (Round depreciation cost per unit to 2 decimal places, eg. 12.25. Round final answers to 0 decimal places, eg
2,125.)
(1)
Martinez uses the straight-line method of depreciation.
(2)
Martinez uses the declining-balance method. The rate used is twice the straight-line rate.
(3)
Martinez uses the units-of-activity method and estimates that the useful life of the machine is 141,500 units. Actual
usage is as follows: 2022, 53,000 units; 2023, 40,000 units; 2024, 27,000 units; 2025, 21.500 units.
Depreciation Expense
2022
2023
2024
2025
Straight-
line
method
Declining-
balance
method
Units-of-
activity
method
%24
%24
%24
2.

(c)
Which method used to calculate depreciation on Machine B reports the highest amount of depreciation expense in year 1
(2022)?
The highest amount in year 4 (2025)?
The highest total amount over the 4-year period?

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