At the beginning of the year, Grillo Industries bought three used machines from Freeman Incorporated. The machines immediately were overhauled, were installed, and started operating. Because the machines were different, each was recorded separately in the accounts.
Machine A Machine B Machine C
Cost of the asset $9,000 $38,200 $22,000
Installation costs 800 2,100 1,200
Renovation costs prior to use 600 1,700 2,200
Repairs after production began 500 600 700
By the end of the first year each machine had been operating 8,000 hours
Required:
1. Compute the cost of each machine.
2. Prepare the journal entry to record depreciation expense at the end of year 1.

For question 1 the cost is "$10,600, $42,300, and $25,700", and for question 2 the cost is "$1,900, $16,000, and $5,140". To understand the calculation, check below.

Cost calculation

(1)

An asset's cost includes the purchase price as well as any additional costs involved in putting the item to use. Any expenses involved after the asset has been put to use will be expensed unless they are incurred to significantly expand the earning capability of the asset. As a result, minor asset repairs will be expensed rather than amortized.

Construction and rehabilitation costs before users will be included in the cost of the item under issue.

Following are the calculation of the cost of Machines A, B, and C:

[tex]\to \$9,100 + \$850 + \$650 = \$10,600[/tex]

[tex]\to \$38,300 + \$2,200 + \$1,800 = \$42,300[/tex]

[tex]\to \$22,100 + \$1,300 + \$2,300 = \$25,700[/tex]

(2)

Machinery A has a 5-year life of asset and a $1,100 resale value. Under the depreciation methodology, the depreciation would be:

(Cost of the Machine – Residual Value) /(Life of the Asset)

[tex]\to \frac{(\$10,600 - \$1,100)}{5} = \$1,900[/tex]

Machinery B The unit of production is calculated at 20,000 hours, with a residual value of $2,300. 8,000 hours were spent during the year.

Degradation will be calculated by using the following:

(Cost of the machine – Variable cost) * (Units utilized during the year/Life units)

[tex]\to (\$42,300 - \$2,300) \times (\frac{8,000}{20,000}) = \$16,000[/tex]

Machinery C has a ten-year life span and a 1,500-dollar residual value. The first depreciation rate is determined using the double reducing balance method. The asset has a 10-year life span here. As just a result, the proportion equals[tex]\frac{100\%}{ 10} = 10\%[/tex].

Depreciation rate will be [tex]10\% \times 2 = 20\%[/tex]. Depreciation was only applied to the residual value in the previous year. We won't go over every calculation right now. Let's take a closer look at the depreciation at the conclusion of the first year.

The cost of an asset multiplied by the depreciation rate will be the answer.

[tex]\to \$25,700 \times 20\% = \$5,140.[/tex]

The Journal entry will be:

General Journal Debit Credit

Depreciation Expense 23,040

Accumulated Depreciation - Machine A 1,900

Accumulated Depreciation - Machine B 16,000

Accumulated Depreciation - Machine C 5,140

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