P9-3A _Thao Company _Depericiation Expense

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Description

P9-3AOn January 1, 2014, Thao Company purchased the
following two machines for use in its production process.

Machine A: The cash price of this machine
was $35,000. Related expenditures included: sales tax $1,700, shipping costs
$150, insurance during shipping $80, installation and testing costs $70, and
$100 of oil and lubricants to be used with the machinery during its first year
of operations. Thao esti­mates that the useful life of the machine is 5 years
with a $5,000 salvage value remaining at the end of that time period. Assume
that the straight-line method of depreciation is used.

Machine B: The recorded cost of this
machine was $80,000. Thao estimates that the useful life of the machine is 4
years with a $5,000 salvage value remain­ing at the end of that time period.

Instructions

(a)’ Prepare the following for Machine A.

(1)
The journal entry to record its purchase on January 1, 2014.

(2)
The journal entry to record annual depreciation at December 31, 2014.

(b) Calculate the amount of depreciation
expense that Thao should record for Machine Beach year of its useful life under the
following assumptions.

(1) Thao uses the straight-line method of
depreciation..

(2) Thao uses the declining-balance
method. The rate used is twice the straight-line rate.

(3) Thao uses the units-of-activity method
and estimates that the useful life of the machine is 125,000 units. Actual
usage is as follows: 2014, 42,000 units; 2015, 35,000units; 2016, 28,000 units; 2017, 20,000
units.

(c) Which method used to calculate
depreciation on Machine B reports the highest amount of depreciation expense in
year 1 (2014)? The highest amount in year 4 (2017)? The highest total amount
over the 4-year period?

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