During 2001, TMC Corporation was expanding its operations into a new manufacturing process for decorating plastic parts.

Fantastic news! We've Found the answer you've been seeking!

Question:

During 2001, TMC Corporation was expanding its operations into a new manufacturing process for decorating plastic parts. The company was investigating the acquisition of new machinery for its decorating process. During the inquiry, the opportunity to acquire all of the used equipment in a factory located in Kentucky arose. The company placed a bid in a sealed bidding process and was declared the top bidder. The bid was accepted on May 15, 2001 for $200,000. The company was responsible for removal of the equipment at the factory in Kentucky and transportation and installation in its new facility in Pawtucket, Rhode Island. TMC incurred certain additional costs related to this acquisition:

Legal bill related to writing the contract for the equipment $3,000

Trucking expenses related to rigging company, which disassembled the machinery in Kentucky and transported it to Pawtucket: 104,783

Wages paid to company employees to help unload and install the machinery during regular working hours 10,500

Cost to repair damage from machinery dropped from truck during unloading 6,000

Additional materials, lumber, steel, and other supplies needed in installation 35,400

Interest paid on note to bank used to finance the purchase of machinery 5,540

Casualty insurance policy on new machinery 3,000

Cost of raw materials used during trial runs of machinery 1,000

Cost of advertising the company’s new manufacturing capability in national trade magazines 30,000

Installation and testing were completed on September 30, 2001. The company expected the machinery to have a 20-year life with a $30,000 salvage value at the end of that time.

Required

a. Determine the costs that should be capitalized in the machinery account.

b. For any cost that was not capitalized, explain your reasoning.

c. Determine the depreciable cost of the machinery.

d. Compute the depreciation expense for 2001 and 2002 using straight-line depreciation.

e. Compute the depreciation expense for 2001 and 2002 using double-declining balance depreciation.

f. Assume that, during 2004, a large oven used to dry decorated pieces needed a major repair costing $20,000. Should the cost of the repair be capitalized? Why or why not?