Grindstone Corp. (Grindstone) produces fad toys for children. In 2014, Grindstone purchased a new stamping machine to
Question:
Grindstone Corp. (Grindstone) produces fad toys for children. In 2014, Grindstone purchased a new stamping machine to produce the latest fad toy. The machine cost $100,000 plus taxes of $13,000, and delivery and installation of $12,000. Grindstone’s management estimates that the market for the toy is about 600,000 units and demand will last no more than three years.
Management expects that it will be able to produce and sell 320,000 units in 2014, 210,000 units in 2015, and 70,000 units in 2016. Once the fad dies, the machine won’t be useful for any purpose and will have to be sold for scrap, about $4,000. Grindstone will use unit-of-production depreciation for the machine.
Required:
a. Prepare the journal entry to record the purchase of the new machine.
b. Prepare a depreciation schedule showing the depreciation expense for each year and the carrying amount of the machine at the end of each year.
c. Suppose that at the end of 2015, Grindstone’s management realized the fad had died more quickly than expected and there was no more demand for the toy.
Prepare the journal entry to record the sale and any other journal entries required with respect to the machine in 2015. Assume that Grindstone produced and sold 75,000 units in 2015 and received $2,000 from a scrap dealer for the machine.
Step by Step Answer: