On 2 January 2015, McGrath Ltd purchased a machine for $36 000 plus GST with a useful
Question:
On 2 January 2015, McGrath Ltd purchased a machine for $36 000 plus GST with a useful life of 5 years and a residual value of $6000. In order to keep the machine running properly, the company has performed regular maintenance and repairs each year since its acquisition. In the fourth year (2018), ordinary repairs amounted to $900 plus GST.
On 3 January 2019, McGrath Ltd decided to completely overhaul the machine’s major operating parts at a cost of $9600 (plus GST), after which the machine is expected to have a useful life of 4 more years and a revised residual value of $4000. McGrath Ltd uses the straight-line depreciation method. The carrying amount of the parts replaced was considered to be $400.
Required
Prepare general journal entries to record:
1. the purchase of the machine on 2 January 2015
2. the day-to-day repairs on the machine in 2018
3. the overhaul of the machine on 3 January 2019
4. depreciation expense on the machine on 31 December 2019.
Step by Step Answer:
Accounting
ISBN: 978-1118608227
9th edition
Authors: Lew Edwards, John Medlin, Keryn Chalmers, Andreas Hellmann, Claire Beattie, Jodie Maxfield, John Hoggett