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Aussie Imports bought a specialized piece of machinery for $50,000 on January 1, 20X3. At the time of acquisition, the machine was estimated to contain a service life of 5 years (25,000 operating hours) and a residual value of $5,000. Throughout the 5 years of operations (20X3 - 20X7), the machine was utilized for 5,100, 4,800, 3,200, 6,000, and 5,900 hours, correspondingly.

Instructions:

a) find out depreciation for 20X3 - 20X7 by using the given methods: straight line, units of output and double-declining-balance.

b) On January 1, 20X5, management shortened the remaining service life of machine to 15 months. Supposing the use of straight-line method, find out the company's depreciation expense for 20X5.

c) In brief describe what you would have done differently in part (a) if Aussie Imports had paid $47,800 for the machinery instead of $50,000 In addition, suppose that the company incurred $800 of freight charges $1,400 for machine setup and testing, and $300 for insurance during the first year of use.

Accounting Basics, Accounting

  • Category:- Accounting Basics
  • Reference No.:- M918545

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