Question

Cost to Acquire Fixed Assets

ACPC, a computer hardware manufacturer, purchases a machine that applies integrated circuit chips to circuit boards using a process called Chips Ahoy Technology (CAT). The costs of acquiring the CAT machine are as follows:

Purchase price…………………………………………………..  $275,000

Freight cost……………………………………………………….       2,550

Repairs made to the room as a result of

improper wiring of an outlet needed for the

machine…………………………………………………………     3,800

Engineer’s fee to set up and test the CAT and

adjust it to required specifications……………….                     6,100

Cost of circuit chips and boards used to test the

new CAT machine to ensure it is working

properly………………………………………………..……..           385

Cost of 2-year service contract. The manufacturer

agrees to make any repairs necessary to the

CAT machine…………………………………………………      4,000

The separate costs should be recorded in the accounting records as either the asset – CAT machine or an expense account. What total amount would the asset - CAT machine be listed as in the accounting records?

Record the purchase.

Date	Account	DR	CR

Straight-Line Depreciation

Wreck-A-Mended Towing and Automotive Repair (WAMTAR) purchased a wrecker on January 1, 2015.  The cost, including taxes and transportation was $50,000.   WAMTARexpects to use the wrecker for 4 years and they estimate that at the end of its 4 year useful life it will have a salvage value of $10,000.  WAMTAR uses straight-line depreciation.

1. Complete the depreciation table below.

Year Ended	Depreciation Expense	Accumulated Depreciation	End of Year Book Value
December 31, 2015
December 31, 2016
December 31, 2017
December 31, 2018
December 31, 2019

2. Suppose WAMTAR sells the wrecker on December 31, 2016 for $15,000 cash. Provide the journal entry on WAMTAR’s books to record the sale.

Date	Account	DR	CR

Straight-Line Depreciation

C’est Cheez Pizza purchased a car on March 1, 2015.  The cost, including taxes and transportation was $14,000.   C’est Cheez expects to use the car for 5 years and they estimate that at the end of its 5 year useful life it will have a salvage value of $2,000.  C’est Cheez uses straight-line depreciation.

1. Complete the depreciation table below.

Year Ended	Depreciation Expense	Accumulated Depreciation	End of Year Book Value
December 31, 2015
December 31, 2016
December 31, 2017
December 31, 2018
December 31, 2019
December 31, 2020

2. Suppose C’est Cheez sells the wrecker on December 31, 2016 for $15,000 cash. Provide the journal entry on C’est Cheez’s books to record the sale.

Date	Account	DR	CR

Answer 1