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At the beginning of the year, Grillo Industries bought three used machines from Freeman Incorporated. The machines immediately were overhauled, were installed, and started operating. Because the machines were different, each was recorded separately in the accounts. Machine A Machine B Machine C Cost of the asset $ 9,500 $ 38,700 $ 22,500 Installation costs 800 2,600 1,700 Renovation costs prior to use 600 2,200 2,700 Repairs after production began 600 600 1,200 By the end of the first year, each machine had been operating 8,000 hours. Required: Compute the cost of each machine. Prepare the journal entry to record depreciation expense at the end of year 1, assuming the following: Estimates Machine Life Residual Value Depreciation Method A 5 years $ 1,500 Straight-line B 20,000 hours 1,100 Units-of-production C 10 years 1,900 Double-declining-balance

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Answer:

1.Cost of the benefit incorporates the price tag and any coincidental expenses caused to make the advantage put to utilize. Any costs made after the advantage is put to utilize will be expensed, with the exception of if those expenses are made to build the acquiring limit significantly. So minor fixes to the benefits will be expensed and not capitalized.  

In the inquiry, Cost of the benefit will incorporate Installation expenses and remodel costs preceding use.  

Cost of Machine A will be $9,100 + $850 + $650 = $10,600  

Cost of Machine B will be $38,300 + $2,200 + $1,800 = $42,300  

Cost of Machine C will be $22,100 + $1,300 + $2,300 = $25,700  

2. Machine A – Life of the advantage is 5 years and leftover worth is 1,100. Utilizing straight line deterioration strategy, devaluation will be (Cost of the Machine – Residual worth)/Life of the advantage = ($10,600 - $1,100)/5 = $1,900  

Machine B – Estimated units of creation is 20,000 hours and leftover worth is $2,300. Hours worked during it were 8,000. Utilizing Units-of-creation technique, devaluation will be (Cost of the machine – Residual worth) * (Units utilized during the year/Life units) = ($42,300 - $2,300) * (8,000/20,000) = $16,000  

Machine C – Life of the advantage is 10 years and remaining worth is 1,500. Utilizing twofold declining balance strategy, first devaluation rate is determined. Here existence of the advantage is 10 years. So the rate is 100%/10 = 10%. As it is a twofold declining strategy, the devaluation rate will be 10% * 2 = 20%. Consistently, this rate is applied on the diminished parity of the benefit esteem. In the most recent year, deterioration is applied distinctly to the degree of remaining worth. Presently we won't talk about all the estimation. Let us the devaluation toward the finish of year 1. That will be Cost of the benefit * Depreciation rate = $25,700 * 20% = $5,140.  

1. Cost of Machine A is = $10,600

Cost of Machine B is = $42,300

Cost of Machine C is = $25,700

2. Machine A,B, and C = $1,900 , $1600, and & $5140

Computation of Depreciation rate

1. Cost of the advantage incorporates the price tag and also any coincidental expenditures caused to make the advantage put to utilize. Any costs made after the benefit is put to utilize will be expensed, excluding if those expenditures are made to build the acquiring limit significantly. So nominal fixes to the benefits will be expensed and also not capitalized.  In the query, the Cost of the benefit will incorporate Induction expenses and recondition costs preceding use.

Cost of Machine A will be $9,100 + $850 + $650 is = $10,600

Cost of Machine B will be $38,300 + $2,200 + $1,800 is = $42,300

Cost of Machine C will be $22,100 + $1,300 + $2,300 is = $25,700

2. Machine A – When The life of the advantage is 5 years and also the leftover worth is 1,100. Operating straight-line deterioration strategy, devaluation will be (Cost of the Machine – Residual worth)/Life of the advantage is = ($10,600 - $1,100)/5 = $1,900  Machine B – When Estimated units of creation is 20,000 hours and also leftover worth is $2,300. Hours worked during it were 8,000. Utilizing Units-of-creation technique, devaluation will be (Cost of the machine – Residual worth) * (Units utilized during the year/Life units) is = ($42,300 - $2,300) * (8,000/20,000) is = $16,000  Machine C – When The life of the advantage is 10 years and also the remaining capital is 1,500. Utilizing a twofold declining balance strategy, the first devaluation rate is persevering. Here the reality of the advantage is 10 years. So the rate is 100%/10 = 10%. As it is a twofold declining strategy, the depreciation rate will be 10% * 2 = 20%. Always, this rate is applied to the diminished parity of the concession esteem. In multiple recent years, deterioration is applied distinctly to the degree of staying worth. Presently we won't speak about all the assessments. Allow us the devaluation toward the finish of year 1. That will be Cost of the benefit * Depreciation rate = $25,700 * 20% = $5,140.

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