Part 1. FlatIrons Company purchased and installed a new machine that cost \(\$ 195,000\), had a five-year life, and an estimated \(\$ 27,300\) salvage value. Management estimated that the machine would produce 120,000 units of product during its life. Actual production of units of product was as follows: year 1, 16,800; year \(2,26,400\); year \(3,24,000\); year \(4,22,800\); and year \(5,30,000\).

\section*{Required}

1. Prepare a calculation showing the number of dollars of this machine's cost that should be charged to depreciation over its five-year life.

2. Prepare a form with the following column headings:

Then show the depreciation for each year and the total depreciation for the machine under each depreciation method. Use twice the straight-line rate for the declining-balance method.
Part 2. On January 9, Gilman Company purchased a used machine for \(\$ 68,400\). The next day, it was repaired at a cost of \(\$ 8,100\) and was mounted on a new cradle that cost \(\$ 6,300\). It was estimated the machine would be used for three years and would then have a \(\$ 10,800\) salvage value. Depreciation was to be charged on a straight-line basis. A full year's depreciation was charged on December 31 of the first and the second years of the machine's use; and on March 29 of its third year of use, the machine was retired from service.

\section*{Required}
1. Prepare general journal entries to record the purchase of the machine, the cost of repairing it, and its installation. Assume cash was paid in each case.
2. Prepare entries to record depreciation on the machine at the end of the first and second years and on March 29 of the third year.
3. Prepare entries to record the retirement of the machine under each of the following unrelated assumptions:

(a) the machine was sold for \(\$ 35,250\); \((b)\) it was sold for \(\$ 24,150\); and

(c) it was destroyed in a fire and the insurance company paid \(\$ 22,050\) in full settlement of the loss claim.

Transcribed Image Text:

Year Straight Line Units of Production Declining Sum-of-the- Balance Years' Digits