# (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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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

 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

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