Vita Water purchased a used machine for $122,000 on January 2, 2020. It was repaired the next day at a cost of $9,625 and installed on a new platform that cost $1,775. The company predicted that the machine would be used for six years and would then have a $17,720 residual value. Depreciation was to be charged on a straight-line basis to the nearest whole month. A full year’s depreciation was recorded on December 31, 2020. On September 30, 2025, it was retired. Required: 1. Prepare journal entries to record the purchase of the machine, the cost of repairing it, and the installation. Assume that cash was paid. 1) Record the purchase of the machine 2) Record the capital repairs on the machine 3) Record installation of the machine 2. Prepare entries to record depreciation on the machine on December 31 of its first year and on September 30 in the year of its disposal. (Round intermediate calculations to the nearest whole dollar.) 1) Record the depreciation 2) Record the partical year's depreciation 3. Prepare entries to record the retirement of the machine under each of the following unrelated assumptions: a. It was sold for $20,000. 1) Record sale of machine for $20,000. b. It was sold for $26,000. 1) Record sale of machine for $26,000. c. It was destroyed in a fire and the insurance company paid $23,000 in full settlement of the loss claim. 1) Record the disposal of machine on full settlement by insurance company
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.
Vita Water purchased a used machine for $122,000 on January 2, 2020. It was repaired the next day at a cost of $9,625 and installed on a new platform that cost $1,775. The company predicted that the machine would be used for six years and would then have a $17,720 residual value.
Required:
1. Prepare
1) Record the purchase of the machine
2) Record the capital repairs on the machine
3) Record installation of the machine
2. Prepare entries to record depreciation on the machine on December 31 of its first year and on September 30 in the year of its disposal. (Round intermediate calculations to the nearest whole dollar.)
1) Record the depreciation
2) Record the partical year's depreciation
3. Prepare entries to record the retirement of the machine under each of the following unrelated assumptions:
a. It was sold for $20,000.
1) Record sale of machine for $20,000.
b. It was sold for $26,000.
1) Record sale of machine for $26,000.
c. It was destroyed in a fire and the insurance company paid $23,000 in full settlement of the loss claim.
1) Record the disposal of machine on full settlement by insurance company.
Step by step
Solved in 4 steps with 5 images
