A Machine Was Acquired on January 1,2018 for $4,000,000

question 9

Essay

A machine was acquired on January 1,2018 for $4,000,000.At that time it was estimated the machine would last eight years and have a residual value of $560,000.Due to reduced levels of activity during 2020,management revised the estimate of useful life to 10 more years (i.e. ,the machine was to be operational until December 31,2029,12 years in total)and its residual value would be $410,000.The company has a December 31 year-end.
Required:
Case A: Prepare the journal entries to record depreciation for 2018 and 2020.The company uses straight-line depreciation.
Case B: Same as Case A except the company uses the double-declining balance method.The rate used will be 25% for the first two years and then 20% thereafter.Prepare the journal entries to record depreciation for 2018 and 2020.

---

Definitions:

Accounts Payable

The total sum a business must pay to its suppliers or creditors for products and services obtained on credit.

Inventory

Goods and materials that a business holds for the ultimate goal of resale, production, or utilization in manufacturing.

Receivable Turnover

A financial metric indicating how efficiently a company collects revenue from its credit customers by measuring the number of times average accounts receivable are collected during a period.

Inventory Turnover

A ratio showing how many times a company's inventory is sold and replaced over a specific period, indicating the efficiency of inventory management.