On January 1, a company purchased machinery for $75,000 that had a 6-year useful life and a salvage value of $6,000. After three years of straight-line depreciation, the company paid $8,500 cash at the beginning of the year to improve the efficiency of the machinery. The productivity of the machinery was improved without increasing its remaining useful life or changing its salvage value. Straight-line depreciation is used throughout the machinery's life.1. Prepare the journal entry to record the $8,500 expenditure.2. Prepare the journal entry to record depreciation expense for the fourth year.
What will be an ideal response?
| 1. | Machinery | 8,500 |
| ? | Cash…………………………………………………… 8,500 |
| 2. | Depreciation expense | 14,333 |
| ? | Accumulated Depr.-Machinery…………………… 14,333 |
| ($75,000 - $6,000)/6 x 3 = | $34,500 Accumulated depreciation after 3 years |
| $75,000 - $34,500 = | $40,500 Book value after 3 years |
| ($40,500 + $8,500 - 6,000)/3 = | $14,333 Depreciation for the fourth year |
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