P9-3A

A
Cost of Machine :
Cash price 35,000
Sales tax 1,700
Shipping cost 150
Insurance 80
Installation 70
Lubricants 100
Total 37,100
Residual value 5,000
Depreciable Cost 32,100

Rate 20%
Depreciation / year 6,420

Journal entry
1 Machine 37,100
Cash / Account Payable 37,100

2 Depreciation Exp 6,420

Accumulated Depreciation 6,420

B
Cost of Machine 80,000
Residual Value 5,000
Depreciable Cost 75,000

1 Straight Line Method

Rate 25%
Depreciation / year 18,750

Year Depreciation Exp Accum Depre Book Value

80,000
1 18,750 18,750 61,250
2 18,750 37,500 42,500
3 18,750 56,250 23,750
4 18,750 75,000 5,000

2 Declining Balance Method

Rate 50%
Depreciation / year 37,500

Year Depreciation Exp Accum Depre Book Value

80,000
 1 37,500 37,500 42,500
2 21,250 58,750 21,250
3 10,625 69,375 10,625
4 5,625 75,000 5,000

3 Unit of Activity

Useful life 125,000 units

Usage:
2014 42,000
2015 35,000
2016 28,000
2017 20,000
Total 125,000

Depreciable Cost 75,000

Rate / Unit of Activity 0.60

Rate 0.60

Year Usage (unit) Depreciation Exp Accum Depre Book Value

80,000
2014 42,000 25,200 25,200 54,800
2015 35,000 21,000 46,200 33,800
2016 28,000 16,800 63,000 17,000
2017 20,000 12,000 75,000 5,000

C
1 Highest amount of depreciation in 2014 Declining Balance
2 Highest amount of depreciation in 2017 Unit of Activity
3 The total amount in 4 years should be same in each of every method
 Nelson Company
General Journal
December 31st 2014
Date COA Debit Credit
2-Jan-14 Patents 560,000
Cash 560,000

1-Apr-14 Goodwill 360,000

Cash 360,000

1-Jul-14 Franchise 440,000

Cash 440,000

1-Sep-14 Research Expense 223,000

Cash 223,000

1-Nov-14 Development Expense 225,000

Cash 225,000

31-Dec-14 Amortization Expense - Patent 70,000

(560,000/8)
Amortization Expense - Franchise 22,000
((440,000/10) * 6/12)
Patent 70,000
Franchise 22,000

Ending balance
Patent 560,000 - 70,000
490,000

Goodwill 360,000

Franchise 440,000 - 22,000

418,000