Question

Grindstone Corp. (Grindstone) produces fad toys for children. In 2015, Grindstone purchased a new stamping machine to produce the latest fad toy. The machine cost $30,000 plus non-refundable 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 2015, 150,000 units in 2016, 65,000 units in 2017, and 5,000 units in 2018. Once the fad dies, the machine won’t be useful for any purpose and will have to be sold for scrap, about $2,000. Grindstone will use units-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 of the machine at the end of each year.
c. Suppose that early in 2017, Grindstone’s management realized that the fad would last longer than expected and that it would be able to sell 100,000 units in 2017, 50,000 in 2018, and 10,000 in 2019, at which time the machine would be scrapped and Grindstone would receive $1,000. Prepare a depreciation schedule showing the depreciation expense for 2017, 2018, and 2019, and the carrying costs of the machine at the end of each year.



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  • CreatedFebruary 26, 2015
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