Exercise 745 Algorithmic Expenditures after Acquisition The

Exercise 7-45 (Algorithmic)

Expenditures after Acquisition

The robotic arm cost $210,000 and was expected to extend the useful life of the machine by three years. Therefore, the useful life of the assembly machine, after the arm replacement, is six years. The assembly machine is expected to have a residual value of $114,000 at the end of its useful life.

1. Prepare the journal entry necessary to record the addition of the robotic arm.

3. What is the book value of the machine at the end of 2011?

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1. Prepare the journal entry necessary to record the addition of the robotic arm. 2. Compute 2011 depreciation expense for the machine using the straight-line method. $    per year Prepare the necessary journal entry to record depreciation expense for 2011. 3. What is the book value of the machine at the end of 2011? $

Solution

Journal entry for addition of Robotic Arm: Assembly machine Account Dr. 210000       Cash account 210000 Cost of Equipment original 750000 Less: Accumulated dep till Jan 2011 480000 Book value at the Beg of 2011 270000 Add: Cost of replacement 210,000.00 Total Net cost 480,000.00 Less: Salvage value 114,000.00 Depreciation amount 366,000.00 Divide: Revised life 6 Annual depreciation for 2011 61,000 Journal entry: Depreciation Expense Account Dr. 61,000      Accumulated depreciation Account 61000 Book value of machine on Dec31 2011: Total cost (750000+210000) 960000 Less: Accumulated dep 541000 (480000+61000) Book value at end of 2011 419000