ABC Company purchases a new machine for cash. The machine costs are $150,000. The 2 company also must pay freight of S750 to get the machine delivered and $500 to get the machine installed. The equipment company has agreed to a 10% reduction in price if ABC accepts the machine by the end of June – which ABC has agreed to. ABC has decided to depreciate the machine by the units of output method. It determines there is salvage value of $2500. The machine will be depreciated over 5 years. The following is the information for 4 units of output. Year 1 Year 2 Year 3 Year 4 1250 hours 1500 hours 2000 hours 2500 hours 1750 hours 10 Year 5 Record the journal entry for the purchase of the equipment for this year, and the journal entry that ABC will record next June for the first year of depreciation on the equipment 15 nits of Output
(Solved Homework): ABC Company purchases a new machine for cash. The machine costs are $150,000. The 2 company also must pay freig…
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(Solved Homework): ABC Company purchases a new machine for cash. The machine costs are $150,000. The 2 company also must pay freig…
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| Journal Entries | ||||
| Sr. No. | Date | Account Title and explanation | Debit | Credit |
| 1) | 30th of June | Machine Account | $1,35,000 | |
| To Cash Account | $1,35,000 | |||
| (Being machine is purchased ) | ||||
| 2 | 30th of June | Freight Account | $750 | |
| Installation account | $500 | |||
| To Cash Account | $1,250 | |||
| (Being freight and installation is paid for machinary) | ||||
| 3) | 30th of June | Machine Account | $1,250 | |
| To Freight | $750 | |||
| To Installantion | $500 | |||
| (Being freight and installation is transfer to machine account) | ||||
| 4) | 30 june next year | Depreciation account | $18,576 | |
| To Machine Account | $18,576 | |||
| (Being depreciation for the first year is charged) | ||||
| Working Notes | ||||
| CALCULATION OF COST OF MACHINARY PURCHASED | ||||
| Machine Cost | $1,50,000.00 | |||
| Less : Discount 10% | $15,000.00 | |||
| Net Cost of machine | $1,35,000.00 | |||
| Add: Freight | $750.00 | |||
| Add: Installantion Fees | $500.00 | |||
| Total Cost of machine | $1,36,250.00 | |||
| CALCULATION OF DEPRECIATION OF FIRST YEAR OF MACHINE | ||||
| Depreciation = Cost of Machine – Salvage Value / No. of Hours utilized | ||||
| Depreciation = $136,250 – $2500 / 9000 Hours | ||||
| Depreciation = $133,750 / 9000 Hours | ||||
| Depreciation = $14.86 Per Hours worked | ||||
| No. of hours used = 1250 + 1500 + 2000+ 2500+ 1750 = 9000 Hours | ||||
| Depreciation for First Year = 1250 Hours * $14.86 = $ 18,576.39 | ||||
