On January 1, 2019, Evers Company purchased the following two machines for use in its production process.

On January 1, 2019, Evers Company purchased the following two machines for use in its production process.

Machine A:      
 The cash price of this machine was $48,000. Related expenditures included: sales tax $1,700, shipping costs $150, insurance during shipping $80, installation and testing costs $70, and $100 of oil and lubricants to be used with the machinery during its first year of operations. Evers estimates that the useful life of the machine is 5 years with a $5,000 salvage value remaining at the end of that time period. Assume that the straight-line method of depreciation is used.
Machine B:       
The recorded cost of this machine was $180,000. Evers estimates that the useful life of the machine is 4 years with a $10,000 salvage value remaining at the end of that time period.


Prepare the following for Machine A.

1.        The journal entry to record its purchase on January 1, 2019.
2.        The journal entry to record annual depreciation at December 31, 2019.

Explanation
(1)        Purchase price        $ 48,000
        Sales tax        1,700
        Shipping costs        150
        Insurance during shipping        80
        Installation and testing        70
              Total cost of machine        $ 50,000

(2)        Recorded cost        $ 50,000
        Less: Salvage value        5,000
        Depreciable cost        $ 45,000
        Years of useful life        ÷ 5
              Annual depreciation        $ 9,000

Calculate the amount of depreciation expense that Evers should record for Machine B each year of its useful life under the following assumptions.

(1)        Evers uses the straight-line method of depreciation.
(2)        Evers uses the declining-balance method. The rate used is twice the straight-line rate.
(3)        Evers uses the units-of-activity method and estimates that the useful life of the machine is 125,000 units. Actual usage is as follows: 2019, 45,000 units; 2020, 35,000 units; 2021, 25,000 units; 2022, 20,000 units.
 
 Explanation

	(1) Straight-line Method
			Recorded cost		180,000
			Less: Salvage value		10,000
			Depreciable cost		$170,000
			Years of useful life		÷ 4
			Annual depreciation		$ 42,500

	(2) Declining-Balance Method
		Book Value at Beginning of Year			DDB Rate			Annual Depreciation Expense			Accumulated Depreciation
		$180,000			50%	*		$90,000			$ 90,000
		90,000			50%			45,000			135,000
		45,000			50%			22,500			157,500
		22,500			50%			12,500	**		170,000

*100% ÷ 4-year useful life = 25% × 2 = 50%.
**$170,000 – $157,500.

	(3) Units-of-Activity Method
	Depreciation cost per unit = ($180,000 – $10,000) / 125,000 units = $1.36 per unit.
	Year		Annual Depreciation Expense
	2019		$1.36 × 45,000	=	$61,200
	2020		1.36 × 35,000	=	47,600
	2021		1.36 × 25,000	=	34,000
	2022		1.36 × 20,000	=	27,200

Thank you!