Question

Use the following information to answer Questions 28–30: On January 2, 2018,
a company purchases a machine for $11,000 and estimates that it will have
a 10-year life and a residual value of $1,000. It is depreciating the machine
for book purposes under the straight-line method.

29. What is the journal entry to record depreciation for a manufacturing
company that uses the machine entirely for the production of inventory?
a. Depreciation Expense 1,000
Accumulated Depreciation—Machine 1,000
b. Inventory—Work-In-Process OH 1,000

30.How is depreciation recorded for a manufacturer using the machine 70%
for the production of inventory?
a. Inventory—Work-In-Process OH 700
Depreciation Expense 300
Accumulated Depreciation—Machine 1,000
b. Inventory—Work-In-Process OH 1,000

Use the following information to answer Questions 31–33: On September 2,
2018, a calendar-year company purchases a used machine (5-year property)
for $510,000. The company takes $500,000 of Sec. 179 but elects out of 100%
bonus depreciation
31. What is the maximum tax deduction for the machine in 2018?
a. $250,000 b. $500,000 c. $502,000 d. $510,000
Accumulated Depreciation—Machine 1,000
c. Inventory—Work-In-Process OH 3,600
Depreciation Expense 400
Inventory—Work-In-Process OH 4,000
d. Depreciation Expense 1,000
Accumulated Depreciation—Machine 1,000
Accumulated Depreciation—Machine 1,000
c. Depreciation Expense 1,000
Inventory—Work-In-Process OH 1,000
d. Inventory—Work-In-Process OH 4,000
Accumulated Depreciation—Machine 4,000

Answer 1

Solution 29 :-

Inventory-WIP-OH a/c Dr 1,000
To accumulated depreciation a/c Cr 1,000
(Being depreciation treated as overhead costs)

Solution 30 :-

Inventory - WIP-OH a/c Dr 700
Depreciation expenses a/c Dr 300
To accumulated depreciation a/c cr.1000
(Being recording of depreciation cost where machine is utilised only 70%)

Solution 31 :-

The maximum tax depreciation for 2018 would be $ 502,000. $ 5,00,000 as company opts for sec 179 and remaining 10,000 to be depreciated on straight line for 5 years.