Question

The following transactions related to a machine purchased by Vicario Company in 2015:
March 1 Purchased the machine at an invoice price of $ 10,000; paid $ 8,000 cash and signed a note for the balance, payable on October 1, 2015 with annual interest at a rate of 6 percent.
March 3 Paid freight of $ 250.
March 5 Paid installation costs of $ 475.
October 1 Paid the balance due plus the related interest.
December 31 Recorded straight- line depreciation on the machine based on an estimated useful life of 10 years and an estimated residual value of $ 1,725.
Required (round all amounts to the nearest dollar):
1. Indicate the accounts affected and the amount and direction (+ for increase and – for decrease) of the effect of each transaction (March 1, 3, 5, and October 1) on the accounting equation. Use the following headings:
2. Compute the acquisition cost of the machine.
3. Compute the depreciation expense to be reported for 2015.
4. What is the impact on the cost of the machine of the interest paid on the note? Under what circumstances can interest expense be included in an asset’s acquisition cost?
5. What would be the carrying amount of the machine at the end of 2016?


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  • CreatedAugust 04, 2015
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