Neufeldt Farm Corporation (NFC) purchased a new piece of farm machinery (air seeder) on January 1, 2019, by paying cash of $42,000 and issuing a $350,000 note payable. The machine has an estimated useful life of eight years (or the production of 1700 hours) and an estimated residual value of $102,000. NFC records depreciation expense only at the end of the year.

Required:

1. Prepare the journal entry that would be recorded regarding the January 1, 2019 purchase of the machine.
2. Determine depreciation expense using straight-line method for the year ending December 31, 2019.
3. Assume instead that NFC determines depreciation expense using the double declining balance method. Calculate the balance that would be in NFCs depreciation expense account and in NFCs accumulated depreciation account for December 31, 2020. Assume that these two accounts pertain only to the machinery described in this question.

Depreciation Expense _______________ Accumulated Depreciation_____________

4. If the machine was used for a total of 204 hours in 2019, what would be the depreciation expense under the units of production depreciation method?

5. Mr. Neufeldt is wondering which depreciation method to use. He tells you that the past few years of wet springs in eastern Saskatchewan have been tough on his farming operation, and is anxious to show the bank a very positive financial statement. He has asked you to tell him which depreciation method will result in the highest net income. Identify which depreciation method he should choose to obtain that goal. What other reasons can you offer as rationale/reason for choosing that method?