At the beginning of the year, Plummer's Sports Center bought three used fitness machines from Advantage, Inc. The machines immediately were overhauled, installed, and started operating. The machines were different; therefore, each had to be recorded separately in the accounts.
| Machine A | Machine B | Machine C | ||||
| Amount paid for asset | $ | 34,400 | $ | 35,700 | $ | 13,900 |
| Installation costs | 2,500 | 1,200 | 800 | |||
| Renovation costs prior to use | 4,400 | 1,800 | 2,300 | |||
By the end of the first year, each machine had been operating 6,100 hours.
Required:
1. Compute the cost of each machine.
1.
| Machine A | Machine B | Machine C | Total | |||||
| Purchase price | $ | 34,400 | $ | 35,700 | $ | 13,900 | $ | 84,000 |
| Installation costs | 2,500 | 1,200 | 800 | 4,500 | ||||
| Renovation costs | 4,400 | 1,800 | 2,300 | 8,500 | ||||
| Total cost | $ | 41,300 | $ | 38,700 | $ | 17,000 | $ | 97,000 |
2. Prepare the 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 | 9 years | $1,700 | Straight-line | ||
| B | 70,000 hours | 3,700 | Units-of-production | ||
| C | 5 years | 1,900 | Double-declining-balance | ||
2.
Computation of depreciation at the end of year 1 for each machine:
| Machine | Method | Computation |
| A | Straight-line | ($41,300 – $1,700) × 1/9 = $4,400 |
| B | Units-of-production |
($38,700 – $3,700) ÷ 70,000 hours = $0.50
|
| 0.50 × 6,100 hours = $3,050 | ||
| C | Double-declining-balance | ($17,000 – $0) × 2/5 = $6,800 |
Adjusting entry:
Depreciation expense ($4,400 + $3,050 + $6,800) = $14,250
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