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You are a staff accountant in a CPA firm. Your manager has asked you to provide a report containing accounting information on the following 3 clients:

Global Inc. purchased a machine and incurred the following expenditures:

Purchase price


Freight costs


Sales tax


Insurance on shipment


Insurance for the first year on the machine


Installation of the machine


  • Calculate the cost to be capitalized.
  • Make an entry that will show which expenses will be capitalized when recording the machine on the books.
  • Show the entry that will be recorded to expense the cost that will not be capitalized.

Brands Resources traded an old machine for a new machine. The book value of the old machine was $150,000 (original cost $320,000, less accumulated depreciation of $170,000). The fair value was $180,000. Brands Resources paid $20,000 to complete the exchange.

  • Prepare the journal entry to record the exchange.

Reliable Company purchased a machine on January 1, 2008 at a net cost of $85,000. At the end of the 4-year life, it expects the machine will have a salvage value of $5,000. It also estimates that the machine will run for 10,000 hours during its 4-year life. The company has a fiscal year that ends on December 31.


Machine hours









  • Calculate the depreciation under the straight line method.
  • Calculate the depreciation under the double declining method.
  • Calculate the depreciation under the units of production method.

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