The Indus Motors Co. just purchase a new computerized information system with an installed cost of Rs. 500,000. The system was qualified for 5-year MACRS.

Required

1. Calculate depreciation expense under MACRS and pass journal entries to record the above transactions

Depreciation rates are

Year                MACRS Rate

1                      20%

2                      32%

3                      19.2%

4                      11.52%

5                      11.52%

6                      5.76%

                        100%

6. Wilmet College recently purchased new computing equipment for its library. The following information refers to the purchase and installation of this equipment:

1. On 1^st March collage purchased the equipment with list price of $275,000; however, Wilmet College qualified for an “education discount” of $25,000. It paid $50,000 cash for the equipment, and issued a three-month, 9 percent note payable for the remaining balance. The note, plus accrued interest charges of $4,500, was paid promptly at the maturity date.
2. In addition to the amounts described in 1, Wilmet paid sales taxes of $15,000 at the date of purchase.  
3. Freight charges for delivery of the equipment totaled $1,000.
4. Installation costs related to the equipment amounted to $5,000.
5. During installation, one of the computer terminals was accidentally damaged by a library employee. It cost the college $500 to repair this damage.

Required

1. In one sentence, make a general statement summarizing the nature of expenditures that qualify for inclusion in the cost of plant assets such as computing equipment
2. For each of the six numbered paragraphs, indicate which items should be included by Wilmet College in the total cost debited to its Computing Equipment account. Also, briefly indicate the proper accounting treatment of those items that are not included in the cost of the equipment.
3. Compute the total cost debited to the college’s Computing Equipment account.
4. Prepare a journal entry at the end of the current year to record depreciation on the computing equipment. Wilmet College will depreciate this equipment by the straight-line method over an estimated useful life of five years. Assume a zero-residual value