Answered Essay: ABC Company purchases a new machine for cash. The machine costs are $150,000. The 2 company also must pay freig

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

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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

Expert Answer

 

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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