Week 2 Learning Team Assignment P10-3A On January 1 200

Week 2 Learning Team Assignment
P10-3A On January 1 2006 Solomon Company purchased the following two machines for use
in its production process.
Machine A: The cash price of this machine was $38500. Related expenditures included:
sales tax $2200 shipping costs $175 insurance during shipping $75 installation
and testing costs $50 and $90 of oil and lubricants to be used with the
machinery during its first year of operation. Solomon estimates that the useful
life of the machine is 4 years with a $5000 salvage value remaining at the
end of that time period.
Machine B: The recorded cost of this machine was $100000. Solomon estimates that the
useful life of the machine is 4 years with a $8000 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 2006.
(2) The journal entry to record annual depreciation at December 31 2006 assuming the
straight-line method of depreciation is used.
(b) Calculate the amount of depreciation expense that Solomon should record for machine B
each year of its useful life under the following assumption.
(1) Solomon uses the straight-line method of depreciation.
(2) Solomon uses the declining-balance method.The rate used is twice the straight-line rate.
(3) Solomon uses the units-of-activity method and estimates the useful life of the machine
is 25000 units. Actual usage is as follows: 2006 6500 units; 2007 7500 units; 2008 6000
units; 2009 5000 units.
(c) Which method used to calculate depreciation on machine B reports the lowest amount of
depreciation expense in year 1 (2006)? The lowest amount in year 4 (2009)? The lowest
total amount over the 4-year period?
Attachments: