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At the beginning of the year, Jimmy Jones Company purchased a quilting machine for $35,000. The following expenditures were incurred: Freight = $1,200 Installation =
At the beginning of the year, Jimmy Jones Company purchased a quilting machine for $35,000. The following expenditures were incurred:
- Freight = $1,200
- Installation = $1,200
- Property tax on the machine for the first year = $750
The machine is estimated to have a useful life of 7 years and a residual value of $2,500.
Consider the following items (each item stands alone):
- What is the initial cost of the machine? Provide the journal entry.
- If Jimmy Jones Company decides to use straight-line depreciation, what is the depreciation for year 1 and year 2? Provide the journal entry for each year.
- If Jimmy Jones Company decides to use double declining for depreciation, what is the depreciation for year 1 and year 2? Provide the journal entry for each year.
- If Jimmy Jones Company decides to use the sum of the year's digits for depreciation, what is the depreciation for year 1 and year 2? Provide the journal entry for each year.
- Assume that at the end of year 3 (before recording the annual depreciation), Jimmy Jones Company changes the useful life from 7 years to 10 years. Provide the journal entry for year 3 annual depreciation. Assume straight-line depreciation.
- Assume that on July 1 of year 5, Jimmy Jones Company sells the quilting machine for $16,250. Provide the journal entry to record the sale of the machine. Assume straight-line depreciation.
- Assume that at the end of year 4, it has been determined that the quilting machine is impaired. Under impairment, the quilting machine is now worth $2,000. Provide the journal entry to record the impairment loss. Assume straight-line depreciation.
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