1.Example Exercise: Costs

The following costs are incurred when the company purchase and use an electronic mixer.

How should these costs be accounted for (through journal entries)?

• Purchase for $500
• Delivery $40
• Damage in unpacking $10
• Purchase new part for mixer $50
• Machine breaks down and replace large internal part $90

2. Example Exercise: Depreciation

The company purchased an electronic mixer for ____. The financial manager believes that the mixer will have a life of 3 years and a residual value of 0. He also believes that the mixer will be active for 4,500 hours in those 3 years. In the first year, the mixer was used 1,100 hours.

1. Calculate the depreciation for the oven in year 1 using

• Straight line method
• Units of output method
• Double declining method

2. What would the journal entry be under the straight line method?
3. What method do you believe is the most appropriate and why?

3. Example Exercise: Disposal

At the end of the first year, the company decide to trade in the mixer for the latest version. The cost of the new mixer is $670. The seller is offering a trade in allowance of $400.

• What is the book value of the mixer at the end of year 1?
• What are the journal entries needed to record the above transaction?

4. Example Exercise: Intangible Assets

The company`s copyright is being expensed to the Income Statement by $25,000 every year.

• Record the journal entry for this transaction in the accounts.