# On January 1, 2024, Sigma Company purchased the following two computer servers for use in its operations Rack Server: The cash price of this server was \$52,000. Related expenditures also paid in cash included provincial sales tax \$6,240, shipping costs

On January 1, 2024, Sigma Company purchased the following two computer servers for use in its operations

Rack Server: The cash price of this server was \$52,000. Related expenditures also paid in cash included provincial sales tax \$6,240, shipping costs \$85, insurance during shipping \$50, and installation and testing costs \$900. Sigma estimates that the useful life of the server is five years, with a \$3,000 residual value remaining at the end of that time period. Assume that the straight-line method of depreciation is used.

Tower Server: The recorded cost of this server was \$85,000. Sigma estimates that the useful life of the machine is four years, with a \$15,000 residual value remaining at the end of that time period.

Instructions

a. Prepare the following for the rack server:

1. The journal entry to record its purchase on January 1, 2024.

2. The journal entry to record annual depreciation expense at December 31, 2024.

b. Calculate the amount of depreciation expense that Sigma should record for the tower server each year of its useful life under the following assumptions:

1. Sigma uses the straight-line method of depreciation.

2. Sigma uses the diminishing-balance method at a rate of 25%.

3. Sigma uses the units-of-production method and estimates that the useful life of the machine is 400,000 hours. Actual usage is as follows: 2024, 125,000 hours; 2025, 95,000 hours; 2026, 80,000 hours; 2027, 100,000 hours. Round per unit depreciation to three decimal places.

c. Refer to the answers in part (b). Which depreciation method reports the lowest amount of depreciation expense in year 1 (2024)? The lowest amount in year 4 (2027)? The lowest total amount over the four-year period?

On December 31, 2024, the accountant for Sigma Company is preparing the required disclosure for the server equipment and has requested your help. Assuming Sigma uses straight-line depreciation for all of their servers, prepare a draft of the appropriate note disclosure for these long lived assets.

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Related Book For

## Accounting Principles Volume 2

ISBN: 9781119786634