At the beginning of the year, McCoy Company bought three used machines from Colt, Inc. The machines immediately were overhauled, installed, and started operating. Because the machines were different, each was recorded separately in the accounts.

By the end of the first year, each machine had been operating 8,000 hours.
Required:
1. Compute the cost of each machine. Explain the rationale for capitalizing or expensing the various costs.
Total cost for all three machines is $42,600.
2. Give the journal entry to record depreciation expense at the end of year 1, assuming the following:

Remember that the formula for double-declining-balance uses cost minus accumulated depreciation (not residual value).

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Machine A Machine B Machine C $ర,600 Amount paid for asset $25,600 600 $6,400 200 Installation costs Renovation costs prior to use Repairs after production began 300 1,500 1,000 325 400 350 400 Estimates Life Residual Value Depreciation Method Straight-line Units-of-productioan Double declining- balance Machine 5 years 40,000 hours 5 years $ 500 1,000 2,000