During 20x7, the controller of the Sparrow Company asked you to prepare correcting journal entries for the following three situations:
Depreciation Methods
The word "depreciation" is defined as an accounting method wherein the cost of tangible assets is spread over its useful life and it usually denotes how much of the assets value has been used up. The depreciation is usually considered as an operating expense. The main reason behind depreciation includes wear and tear of the assets, obsolescence etc.
Depreciation Accounting
In terms of accounting, with the passage of time the value of a fixed asset (like machinery, plants, furniture etc.) goes down over a specific period of time is known as depreciation. Now, the question comes in your mind, why the value of the fixed asset reduces over time.
During 20x7, the controller of the Sparrow Company asked you to prepare correcting journal entries for the following three situations:
1. Machine A was purchased for 400,000 on January 1, 20x5. It had an estimated residual value of 50,000 and an estimated service life of 10 years. It has been
2. Machine B was purchased for 500,000 on January, 20x2. Straight line depreciation has been recorded for 5 years, and the
3. Machine C was purchased for 200,000 on January 20x6. Double-declinig-balance depreciation has been recorded for 1 year. The estimated residual value of the machine is 20,000 and the estimated service life is 5 years. The computation of the depreciation erroneously included the estimated residual value.
Required:
prepare any necessary correcting journal entries for each situation. Also prepare the
Trending now
This is a popular solution!
Step by step
Solved in 4 steps with 12 images
