ACC 281: P10-3A Compute depreciation under different methods

ACC 281 P10-3A On January 1, 2008, Pele Company purchased
the following two machines for use in its production process

Financial Accounting Transaction Analysis: Weygandt, J. J.,
Kimmel, P. D., & Kieso, D. E. (2008). Financial Accounting (6th ed.).
Hoboken, NJ: Wiley.

Axia College of University of Phoenix (UoP)

ACC 281 Week Three

Learning Team Assignment

P10-3A Compute depreciation under different methods.

On January 1, 2008, Pele Company purchased the following two
machines for use in its production

process.

Machine A: The cash price of this machine was $38,000.
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.
Pele 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 $160,000.
Pele estimates that the useful life of the machine is 4 years with a $10,000
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,
2008.

(2) The journal entry to record annual depreciation at
December 31, 2008.

(b) Calculate the amount of depreciation expense that Pele
should record for machine B each year of

its useful life under the following assumptions.

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

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

(3) Pele uses the units-of-activity method and estimates
that the useful life of the machine is 125,000 units. Actual usage is as
follows: 2008, 45,000 units; 2009, 35,000 units; 2010, 25,000 units; 2011,
20,000 units.

(c) Which method used to calculate depreciation on machine B
reports the highest amount of depreciation expense in year 1 (2008)? The
highest amount in year 4 (2011)? The highest total amount over the 4-year
period?