On May 1, 2020, Spencer Industries purchased the machine for use in its production process. The cash price of this machine was $35,000, sales tax $2,200, insurance during shipping $80, shipping costs $150, installation and testing costs $70, and $100 of oil and lubricants to be used with the machinery during its first year of operations.

Instructions:

1. Prepare the journal entry to record its purchase on May 1, 2020.

2. Compute depreciation on December 31, 2020 under the methods bellow:

A. The straight-line method of depreciation, estimates the useful life of the machine is 4 years with a $5,000 residual value remaining at the end of that time period.

B. The declining-balance method, estimates the useful life of the machine is 4 years with a $5,000 residual value remaining at the end of that time period. The rate used is twice the straight-line rate.

C. The units-of-activity method, estimates that the useful life of the machine is 125,000 units. Actual usage is as follows: 2020, 28,000 units; 2021, 37,000 units; 2022, 42,000 units; and 2023, 18,000 units.

3. The adjusting entry to record annual depreciation using straight-line method on December 31, 2020.