On January 2, 2024, Evers Company purchased the following two machines for use in its production process. 

Machine A: The cash price of this machine was $48,000. Related expenditures also paid in cash included provincial sales tax $1,700, shipping costs $150, insurance during shipping $80, installation and testing costs $70, and $100 of oil and lubricants to be used with the machinery during its first year of operations. Evers estimates that the useful life of the machine is five years, with a $5,000 residual value remaining at the end of that time period. Assume that the straight-line method of depreciation is used. 

Machine B: The recorded cost of this machine was $180,000. Evers estimates that the useful life of the machine is five years, with a $10,000 residual value remaining at the end of that time period.

Instructions 

a. Prepare the following for Machine A. 1. The journal entry to record its purchase on January 2, 2024. 2. The journal entry to record annual depreciation expense at December 31, 2024. 

b. Calculate the amount of depreciation expense that Evers should record for Machine B each year of its useful life under the following assumptions: 

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

2. Evers uses the diminishing-balance method at a rate of 40%. 

3. Evers uses the units-of-production method and estimates that the useful life of the machine is 140,000 units. Actual usage is as follows: 2024, 45,000 units; 2025, 35,000 units; 2026, 25,000 units; 2027, 20,000 units; 2028, 15,000 units. 

c. Refer to the answers in part (b). Which depreciation method reports the highest amount of depreciation expense in year 1 (2024)? The highest amount in year 5 (2028)? The highest total amount over the five-year period? 

Assume that Machine B required major work to ensure it would continue to operate but the overhaul also improved the machine’s efficiency by 50% and added two additional years of useful life. The owner of Evers Company, John Evers, is unsure how to account for this cost. Prepare a memo to John explaining how the cost should be recorded and why.