Question
Grumpy Inc purchased a machine on January 1, 2021, at a cost of $120,000. The machine was originally estimated to have a salvage value of
Grumpy Inc purchased a machine on January 1, 2021, at a cost of $120,000. The machine was originally estimated to have a salvage value of $15,000 and an estimated life of 3 years. The machine is expected to produce a total of 100,000 components during its life, distributed as follows, 40,000 in 2021, 35,000 in 2022, and 25,000 in 2023. Required: a) Calculate the amount of depreciation to be charged in each of the three years, using each of the following methods. i) Straight-line method ii) Units of activity iii) Declining balance at a rate of 200% b) Which method results in the highest depreciation expense: i) During the first two years? i) Over all three years? Part 2 - 7 Marks Sleepy Ltd negotiated a purchase of land, building and equipment from Bambi Corp. The purchase was completed on June 28, 2021 at a total cash cost of $800,000. The estimated market value of each asset at the time was: land, $330,000; building, $520,000; and machinery, $150,000. Required: 1. Prepare journal entries to record each of the purchase of the assets on June 28, 2021. 2. How much depreciation will be recorded for the December
31, 2021 year end assuming declining balance depreciation on the building over 40 years and 5 years on the machinery? Company policy is to start depreciating assets at the beginning of the month following acquisition
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