Question

Kyuquot Corp. (Kyuquot) produces fad toys for children. In 2017, Kyuquot purchased a new stamping machine to produce the latest fad toy. The machine cost $60,000 plus taxes of $10,000 ($7,800 of the taxes is re fundable), and delivery and installation of $4,000. Kyuquot's management estimates that the market for the toy is about 500,000 units and demand for the toy will last no more than four years. Management expects that it will be able to produce and sell 60,000 units n 2017, 300,000 units in 2018, 130,000 units in 2019, and 10,000 units in 2020. Once the fad dies, the machine won't be useful for any purpose and will have to be sold for scrap, about $4,000. Kyuquot 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 a depreciation schedule showing the depreciation expense for each year and the carrying amount of the machine at the end of each year.
c. Suppose that at the end of 2019, Kyuquot's management realized the fad had died more quickly than expected and 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 2019. Assume that Kyuquot produced and sold 75,000 units in 2019 and received $2,000 from a scrap dealer for the machine.



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  • CreatedFebruary 26, 2015
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