Reference no: EM132477660
Question 1 - Partial year's depreciation; alternative methods; exchange/disposal of PPE
Zephyr Minerals completed the following transactions involving machinery.
Machine No. 1550 was purchased for cash on April 1, 2020, at an installed cost of $52,900. Its useful life was estimated to be six years with a $4,300 trade-in value. Straight-line depreciation was recorded for the machine at the ends of 2020, 2021, and 2022.
On March 29, 2023, it was traded for Machine No. 1795, with an installed cash price of $62,000. A trade-in allowance of $30,210 was received for machine No.1550, and the balance was paid in cash. The fair values of Machine No.1550 and Machine No.1795 could not be determined.
Machine No.1795's life was predicted to be four years with a trade-in value of $8,200. Double-declining-balance depreciation on this machine was recorded each December 31. On October 2, 2024, it was traded for Machine No. BT-311 which had an installed cash price of $537,000, the machine's fair value. A trade-in allowance of $20,000 was received for Machine No.1795, and the balance was paid in cash.
It was estimated that Machine No. BT-311 would produce 200,000 units of product during its five-year useful life, after which it would have a $35,000 trade-in value. Units-of-production depreciation was recorded for the machine for 2024, a period in which it produced 31,000 units of product. Between January 1, 2025, and August 21, 2027, the machine produced 108,000 more units. On August 21, 2027, it was sold for $81,200.
Required - Round calculations to the nearest dollar and prepare journal entries to record:
a. The depreciation expense recorded to the nearest whole month on the first December 31 of each machine's life.
b. The purchase/exchange/disposal of each machine.
Question 2 - Intangible Assets
On October 1, 2020, Kingsway Broadcasting purchased for $288,000 the copyright to publish the music composed by a local Celtic group. Kingsway expects the music to be sold over the next three years. The company uses the straight-line method to amortize intangibles.
Required - Prepare entries to record the purchase of the copyright.