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Chapter 8: Q1E (page 388)

Question: Rizio Co. purchases a machine for \(12,500, terms 2∕10, n∕60, FOB shipping point. The seller prepaid the \)360 freight charges, adding the amount to the invoice and bringing its total to \(12,860. The machine requires special steel mounting and power connections costing \)895. Another \(475 is paid to assemble the machine and get it into operation. In moving the machine to its steel mounting, \)180 in damages occurred. Materials costing $40 are used in adjusting the machine to produce a satisfactory product. The adjustments are normal for this machine and are not the result of the damages. Compute the cost recorded for this machine. (Rizio pays for this machine within the cash discount period.

Short Answer

Expert verified

The total cost of machine is $14,270.

Step by step solution

01

Cost determination of machinery

The costs of machinery and equipment consist of all costs normal and necessary to purchase them and prepare them for their intended use. These include the purchase price, taxes, transportation charges, insurance while in transit, and the installing, assembling, and testing of the machinery and equipment.

02

Computation of the cost recorder for the machine

The total cost of machine is $14,270.

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Most popular questions from this chapter

On February 19 of the current year, Quartzite Co. pays \(5,400,000 for land estimated to contain 4 million tons of recoverable ore. It installs machinery costing \)400,000 that has a 16-year life and no salvage value and is capable of mining the ore deposit in 12 years. The machinery is paid for on March 21, eleven days before mining operations begin. The company removes and sells 254,000 tons of ore during its first nine months of operations ending on December 31. Depreciation of the machinery is in proportion to the mine’s depletion as the machinery will be abandoned after the ore is mined.

Required

Prepare entries to record (a) the purchase of the land, (b) the cost and installation of the machinery, (c) the first nine months’ depletion assuming the land has a net salvage value of zero after the ore is mined, and (d) the first nine months’ depreciation on the machinery.

Analysis Component

Describe both the similarities and differences in amortization, depletion, and depreciation.

Question: Perez Company acquires an ore mine at a cost of \(1,400,000. It incurs additional costs of \)400,000 to access the mine, which is estimated to hold 1,000,000 tons of ore. The estimated value of the land after the ore is removed is $200,000.

Prepare the entry(ies) to record the cost of the ore mine.
Prepare the year-end adjusting entry if 180,000 tons of ore are mined and sold the first year.

Timberly Construction negotiates a lump-sum purchase of several assets from a company that is going out of business. The purchase is completed on January 1, 2017, at a total cash price of \(900,000 for a building, land, land improvements, and four vehicles. The estimated market values of the assets are building, \)508,800; land, \(297,600; land improvements, \)28,800; and four vehicles, \(124,800. The company’s fiscal year ends on December 31.

Required

Prepare a table to allocate the lump-sum purchase price to the separate assets purchased (round percentages to the nearest 1%). Prepare the journal entry to record the purchase.
Compute the depreciation expense for year 2017 on the building using the straight-line method, assuming a 15-year life and a \)27,000 salvage value.
Compute the depreciation expense for year 2017 on the land improvements assuming a five-year life and double-declining-balance depreciation.
Analysis Component
Defend or refute this statement: Accelerated depreciation results in payment of less taxes over the asset’s life.

Question: What is the difference between ordinary repairs and extraordinary repairs? How could each be recorded?

Champion Contractors completed the following transactions and events involving the purchase and operation of equipment in its business.

2016

Jan. 1 Paid \(287,600 cash plus \)11,500 in sales tax and \(1,500 in transportation (FOB shipping point) for a new loader. The loader is estimated to have a four-year life and a \)20,600 salvage value. Loader costs are recorded in the Equipment account.

3 Paid \(4,800 to enclose the cab and install air-conditioning in the loader to enable operations under harsher conditions. This increased the estimated salvage value of the loader by another \)1,400. Dec. 31 Recorded annual straight-line depreciation on the loader.

2017

Jan. 1 Paid \(5,400 to overhaul the loader’s engine, which increased the loader’s estimated useful life by two years.

Feb. 17 Paid \)820 to repair the loader after the operator backed it into a tree.

Dec. 31 Recorded annual straight-line depreciation on the loader.

Required

Prepare journal entries to record these transactions and events.

See all solutions

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