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### Problem 10-3A Pele Company

Price: \$3.99

P10-3A On January 1, 2010, Pele Company purchased the following two machines for use in
its production process.

Machine A: The cash price of this machine was \$38,000. Related expenditures included:
sales tax \$1,700, shipping costs \$150, insurance during shipping \$80, installation
and testing costs \$70, and \$100 of oil and lubricants to be used with the
machinery during its first year of operations. Pele estimates that the useful
life of the machine is 5 years with a \$5,000 salvage value remaining at the end

of that time period. Assume that the straight-line method of depreciation
is used.

Machine B: The recorded cost of this machine was \$160,000. Pele estimates that the useful
life of the machine is 4 years with a \$10,000 salvage value remaining at the end
of that time period.

Instructions

(a) Prepare the following for Machine A.

(1) The journal entry to record its purchase on January 1, 2010.

(2) The journal entry to record annual depreciation at December 31, 2010.

(b) Calculate the amount of depreciation expense that Pele should record for machine B each
year of its useful life under the following assumptions.

(1) Pele uses the straight-line method of depreciation.

(2) Pele uses the declining-balance method.The rate used is twice the straight-line rate.

(3) Pele uses the units-of-activity method and estimates that the useful life of the machine is
125,000 units. Actual usage is as follows: 2010, 45,000 units; 2011, 35,000 units; 2012,
25,000 units; 2013, 20,000 units.

(c) Which method used to calculate depreciation on machine B reports the highest amount of
depreciation expense in year 1 (2010)? The highest amount in year 4 (2013)? The highest
total amount over the 4-year period?