(Unit-of-production amortization, LO 2, 3, 6) Grindstone Corp. (Grindstone) produces fad toys for children. In 2004 Grindstone purchased a new stamping machine to produce the latest fad toy. The machine cost $30,000 plus taxes of $2,100, and delivery and installation of $1,000. Grindstone’s management estimates that the market for the toy is about 250,000 units and demand for the toy will last no more than four years. Management expects that it will be able to produce and sell 30,000 units in 2004, 150,000 units in 2005, 65,000 units in 2006, and 5,000 units in 2007.

Once the fad dies, the machine will not be useful for any purpose and will have to be sold for scrap, about $2,000. Grindstone will use unit-of-production amortization for the machine.

Required:

a. Prepare the journal entry to record the purchase of the new machine.

b. Prepare an amortization schedule showing the amortization expense for each year and the NBV of the machine at the end of each year.

c. Suppose that at the end 2005 Grindstone’s management realized that the fad died more quickly than expected and that 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 2005. Assume that Grindstone produced and sold 150,000 units in 2005 and received $5,000 from a scrap dealer for the machine.