You are a staff accountant in a CPA firm. Your manager has asked you to provide a report containing accounting information on the following client: Global Inc. purchased a machine and incurred the following expenditures:

Problem#1

You are a staff accountant in a CPA firm. Your manager has asked you to provide a report containing accounting information on the following client:

Global Inc. purchased a machine and incurred the following expenditures:

Purchase price
$20,000

Freight costs
$1,000

Sales tax
$2,000

Insurance on shipment
$200

Insurance for the first year on the machine
$500

Installation of the machine
$2,000


•Calculate the cost to be capitalized.
•Make an entry that will show which expenses will be capitalized when recording the machine on the books.
•Show the entry that will be recorded to expense the cost that will not be capitalized.

Problem#2

Brands Resources traded an old machine for a new machine. The book value of the old machine was $150,000 (original cost $320,000, less accumulated depreciation of $170,000). The fair value was $180,000. Brands Resources paid $20,000 to complete the exchange.

Prepare the journal entry to record the exchange.

PROBLEM#3

Reliable Company purchased a machine on January 1, 2008 at a net cost of $85,000. At the end of the 4-year life, it expects the machine will have a salvage value of $5,000. It also estimates that the machine will run for 10,000 hours during its 4-year life. The company has a fiscal year that ends on December 31.

Year
Machine hours

2008
2,000

2009
3,000

2010
1,000

2011
4,000


•Calculate the depreciation under the straight line method.
•Calculate the depreciation under the double declining method.
•Calculate the depreciation under the units of production method.