Question 1: Property, Plant, and Equipment
West Baden City Corporation purchased a new waste recycling machine on January 1,
2006. The machine cost $1,296,000. West Baden paid $496,000 cash and signed a five-
year 6% note for the balance. At the time of purchase the machine was estimated to have
a useful life of 12 years and an estimated resale value at the end of year 12 of $48,000.
The machine will be used to sort recyclables collected from households in the city and is
estimated to process 3,120,000 tons of recyclables during its 12 year life.
a. Prepare the journal entry to record the purchase of the machine on January 1, 2006.
b. Prepare the journal entry to record depreciation expense for 2006 assuming West
Baden City Corporation elects to depreciate the machine using the straight-line method.
[1,296,000 – 48,000] / 12 years = 104,000 per year
c. Prepare the journal entry to record depreciation expense for 2006 assuming West
Baden City Corporation elects to depreciate the machine using the double declining-
[1,296,000 – 0] x 2/12 = 216,000
Question 1 continued over . . .
Mgmt 200 – Exam 3 – Spring 2008 Solution outline – page 1