On January 2, 2018, Athol Company bought a machine for use inoperations. The machine has an estimated useful life of eight yearsand an estimated residual value of $1,750. The company provided thefollowing information:
- Invoice price of the machine, $73,000.
- Freight paid by the vendor per sales agreement, $870.
- Installation costs, $2,000 cash.
- Cost of cleaning up the supplies, boxes, and other garbage thatremained after the installation of the machine, $125 cash.
- Payment of the machine's price was made as follows:
January 2:
- Issued 950 common shares of Athol Company at $4 per share.
- Signed a $39,000 note payable due April 16, 2018, plus 12percent interest.
- Balance of the invoice price to be paid in cash. The invoiceallows for a 2 percent cash discount if the cash payment is made byJanuary 11.
January 15: Paid the balance of the invoice price in cash.
April 16: Paid the note payable and interest in cash.
- On June 30, 2020, the company completed the replacement of amajor part of the machine that cost $12,550. This expenditure isexpected to reduce the machine’s operating costs, increase itsestimated useful life by two years, and decrease its estimatedresidual value to $1,250.
- Assume that on October 1, 2025, the company decided to replacethe machine with a newer, more efficient model. It then sold themachine to Sako Ltd. on that date for $23,000 cash.
Required:
1. Compute the acquisition cost of the machine.
2. Prepare the journal entries to record the purchase of themachine and subsequent cash payments on January 15 and April 16,2018. (Do not round intermediate calculations and roundyour final answers to the nearest dollar amount. If no entry isrequired for a transaction/event, select "No journal entryrequired" in the first account field.)
3. Compute the depreciation expense for each of the years 2018,2019, and 2020, assuming the company’s fiscal year ends on December31. Use the straight-line depreciation method. (Do notround intermediate calculations and round your final answers to thenearest dollar amount.)
4. Prepare the journal entry to record the sale of the machineon October 1, 2025. (Hint: First determine the balance ofthe accumulated depreciation account on that date.) (Do notround intermediate calculations and round your final answers to thenearest dollar amount. If no entry is required for atransaction/event, select "No journal entry required" in the firstaccount field.)
