Machineco Inc. has been offered a five year contract to machine 10,000 gear boxes. If Machineco accepts the contract the company will have to purchase a new milling machine that has a list price of $350,000. To put the mill into operation, an additional $60,000 will have to be spent on utility hook-up and foundation modifications. During the construction period of three months the weighted average cost of interest was 9.6% which means that $9,840 of interest expense should be capitalized as part of the cost of the mill. The new mill will be sold at the end of the contract for $50,000. The physical life of the mill is ten years at which time it's salvage value will be $25,000. Assume Machineco purchases the new equipment on Oct. 1, 2016 and starts operating it on Jan. 1, 2017 when installation is completed.
Required: Calculate depreciation for FY17 and FY18 and make the required journal entry using :
A. Straight line depreciation.
DATE ACCOUNT DR CR
B. 200% double declining balance.
DATE ACCOUNT DR CR

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© 1/15/2014 Prof. R.S Claire all rights reserved.
C. Units of Production assuming that 1,950 gear boxes were machined in 2017 and 2,300 gear boxes were machined in 2018.
DATE ACCOUNT DR CR
2. Megco has purchased a new CNC lathe. The lathe had an invoice price of $132,000 and an installation cost of $12,000. During installation of two months Megco had a weighted average of cost of interest of 14%. The late has a physical life of 10 years and it is estimated that it can be sold at the end of that time for $28,000. The lathe was purchased specifically for a new six-year machining contract and at the end of the contract will be sold for $70,000. The contract call for a total 6,000 machined parts over the 6 year life of the contract. Assume that the lathe is purchased on 1/1/17. Required: Calculate depreciation for FY17 and FY18 and make the required journal entry using :
A. Straight line depreciation.
DATE ACCOUNT DR CR
B. 200% double declining balance.
DATE ACCOUNT DR CR

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© 1/15/2014 Prof. R.S Claire all rights reserved.
C. Units of Production assuming that 1,250 parts were machined in 2017 and 972 parts were machined in 2018.
DATE ACCOUNT DR CR
3. Mikeco is in the software development business. The company currently owns a IBM Blade server. Mikeco wants to upgrade to a new more powerful server. The new system will cost $7,000 complete and will have a physical life of eight years. At the end of the server’s physical life it will have no salvage value. Mikeco has a policy of up grading (buying a new server) every five years. At the end of five years it is estimated that the new system can be sold for $1,000. The total contract was for 6,000 parts to be delivered over the next six years.
Required: Assume the system is purchased on 1/1/17.
A. Calculate the depreciation for FY17 and FY18 using 200% double declining balance and make the required journal entry.
DATE ACCOUNT DR CR
B. Make the journal entry required on 12/31/17 and 12/31/18 using straight line depreciation.
DATE ACCOUNT DR CR
© 1/15/2014 Prof. R.S Claire all rights reserved.
4. Meganco purchased a new cruncher on 1/1/17 for a total installed cost of $1,250,000. It has a 15 year physical life and can be sold for $150,000 at that time. The Use Permit on the land site where the cruncher is located, will expire in 8 years at which time the cruncher will have to be dismantled and sold for $300,000.
Required:
A. Assume that Meganco uses 200% double declining balance depreciation, make the required adjusting entries on 12/31/17 and 12/31/18
DATE ACCOUNT DR CR
B. Make the journal entry required on 12/31/17 and 12/31/18 using straight line depreciation.

Answer rating: 100% (QA)

No1 Purchase Cost 350000 Installation Cost 60000 Interes... View the full answer