1) On October 1, 2011, Atherton Fuel Corp. purchased new equipment from Acme Equipment Company that had a purchase price (including sales tax) of $76,245. Acme charged $1,700 to deliver the equipment and $6,800 to install it at Atherton Fuel's site. Atherton Fuel's accountant provided the payment for the equipment, delivery, and installation to Acme that day. Atherton Fuel had its own master-level employees perform trial runs on the equipment. This took 8.5 hours, and those employees earn $30 per hour. During the trial runs, there was some damage to one of the walls beside the equipment. Atherton Fuel's maintenance staff repaired the wall. The cost for the maintenance wages was $85. All wages for trial runs and wall repair will be paid at the end of the following week.

1-a) Which of the following costs that Atherton Fuel will capitalize as part of the cost of the equipment?

Capitalize or not capitalize

$255
$6,800
$1,700
$76,245
$85

1-b ) Which of the following costs that Atherton Fuel will expense immediately?

Immediately or Not immediately

$85

$255

$6800

$1700

$30

2) Prepare the journal entry to record the purchase of the equipment.

2) How does each row of the above journal entry affect the accounting equation, and on which financial statement is it reported? If it is not affected then select "No effect" as correct answer.

3) APPLY THE CONCEPTS: Calculate and determine the entry for straight-line depreciation

The equipment purchased by Atherton Fuel Corp. (see the journal entry above) is expected to have a useful life of four years. At the end of its useful life, the residual value of the equipment is estimated to be $5,000. Atherton Fuel Corp.'s fiscal year ends each December 31.

In the table to the below, calculate the equipment's depreciation expense, the balance of accumulated depreciation, and the book value for each year the equipment is expected to be in service, using the straight-line method.

Straight-Line Method
Year	Depreciation Expense	Accumulated Depreciation	Book Value
2011	$	$	$
2012	$	$	$
2013	$	$	$
2014	$	$	$
2015	$	$	$

3) Atherton Fuel prepares the entry to record depreciation each year on December 31. The accounts affected are Depreciation Expense and Accumulated Depreciation. Indicate how is the journal entry recorded, what effect does the entry have on the accounting equation, and on which financial statement is it reported in the table below. If it is not affected then select "No effect" as correct answer.

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