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A Machine Was Acquired on January 1, 2012 for $4,000,000

Question 121

Essay

A machine was acquired on January 1, 2012 for $4,000,000. At that time it was estimated the machine would last eight years and have a residual value of $560,000. Due to reduced levels of activity during 2014, management revised the estimate of useful life to 10 more years (i.e., the machine was to be operational until December 31, 2023, 12 years in total)and its residual value would be $410,000. The company has a December 31 year-end.
Required:
Case A: Prepare the journal entries to record depreciation for 2012 and 2014. The company uses straight-line depreciation.
Case B: Same as Case A except the company uses the double-declining balance method. The rate used will be 25% for the first two years and then 20% thereafter. Prepare the journal entries to record depreciation for 2012 and 2014.

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Case A:
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