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Sedaia [141]
3 years ago
7

On April 1, 2016, the KB Toy Company purchased equipment to be used in its manufacturing process. The equipment cost $57,200, ha

s an ten-year useful life, and has no residual value. The company uses the straight-line depreciation method for all manufacturing equipment.
On January 4, 2018, $14,750 was spent to repair the equipment and to add a feature that increased its operating efficiency. Of the total expenditure, $2,900 represented ordinary repairs and annual maintenance and $11,850 represented the cost of the new feature. In addition to increasing operating efficiency, the total useful life of the equipment was extended to 12 years.

Required:

1. Prepare journal entries for the depreciation for 2016 and 2017.
2. Prepare journal entries for the 2018 expenditure.
3. Prepare journal entries for the depreciation for 2018.
Business
2 answers:
Harman [31]3 years ago
5 0

Answer:

2016 Depreciation

Dr depreciation expense $5720

Cr Accumulated depreciation               $5720

2017 Depreciation

Dr depreciation expense $5720

Cr Accumulated depreciation               $5720

Journal entries for 2018 expenditure

Dr repairs and maintenance   $2900

Dr Equipment account             $11850

Cr Cash account                                          $14750

2018 Depreciation

Dr depreciation expense          $4800.83

Cr Accumulated depreciation                     $4800.83

Explanation:

There are two policies for depreciating non-current asset  especially when it is acquired part-way through the year like we have here, namely full year depreciation in the year of purchase and none in the year of disposal or proportional depreciation throughout the useful life,I am adopting the former in this question.

Formula for depreciation=cost-residual value/useful life

Yearly depreciation is ($57200-$0)/10=$5720

However,after two years the book value is calculated thus:

Book value=$57200-($5720*2)=$45760

additional cost incurred in enhancing the capacity of the asset would be added :  $45760 +$11,850=$57610

Since the useful life has also been reviewed up to 12 years, the depreciation from now on is $57610/12=$4800.83

lbvjy [14]3 years ago
3 0

Answer:

1. Journal Entry for December 31, 2016

Depreciation Expense                                 Debit    $ 4,290

Allowance for depreciation Equipment      Credit                     $ 4,290

Journal Entry for December 31, 2017

Depreciation Expense                                 Debit     $ 5,720

Allowance for depreciation Equipment      Credit                     $ 5,720  

Journal entry

2. Repairs and Maintenance Expense        Debit    $ 2,900

Equipment                                                     Debit    $ 11,850

Cash                                                               Credit                   $ 14,750

3. Depreciation Expense                              Debit     $ 5,904

Allowance for depreciation Equipment      Credit                     $ 5,904

Explanation:

Computation of depreciation for 2016 and 2017

Original cost of equipment                                              $ 57,200

Salvage Value                                                                  <u>$            0 </u>

Depreciable Basis                                                            $ 57,200

Useful Life 10 years

Annual depreciation $ 57,200 / 10 years $ 5,720

Depreciation for 2016 from April - December 9 months          $ 4,290

Depreciation for 2017 = Full Year                                               $ 5,720

Computation of Depreciation for 2018

Depreciation for Jan to December 2018

Original Cost of equipment                                 $ 57,200

Less: Depreciation for 1 year 9 months              <u>$ (10,010) </u>            

Net book value as at January 01 2018                $ 47,190

Add: New Feature adding value to equipment  <u>$ 11,850</u>

Revised Depreciation Base                                 $ 59,040

Revised remaining useful life ( 12 - 2)                   10 years

Depreciation for full year                                      $ 5,904

 

Depreciation for 2018                                                               $ 5,904

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Explanation:

The closing entries are recorded to close the current year's income statement  to the retained earnings account,

According to the data in the question, the revenue is closed to the credit of the income Summary  of $ 68,000 and the expenses are closed to the debit of the Income Summary of $ 45,000. This leaves a credit balance of $ 23,000 in the income summary account which is closed by debiting the income summary account and crediting the retained earnings account.

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Suppose that Greece and Germany both produce oil and shoes. Greece's opportunity cost of producing a pair of shoes is 5 barrels
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Answer:

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