Computing the Acquisition Cost and Recording Depreciation under Three Alternative Methods

Computing the Acquisition Cost and Recording Depreciation under Three Alternative Methods – At the beginning of the year, Ramos Inc. bought three used machines from Santaro Corporation. 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

Cost of the asset

$12,200

$32,500

$21,700

Installation costs

800

1,100

1,100

Renovation costs prior to use

600

1,400

1,600

By the end of the first year, each machine had been operating 7,000 hours.

Required:

1. Compute the cost of each machine.

2. Give the entry to record depreciation expense at the end of year 1, assuming the following:

ESTIMATES

Machine

Life

Residual Value

Depreciation Method

A

8 years

$1,000

Straight-line

B

33,000 hours

2,000

Units-of-production

C

5 years

1,400

Double-declining-balance

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