Sanders Company purchased the following on January 1, 2019: • Office equipment at a cost of $60,000 with an estimated useful life to the company of three years and a residual value of $15,000. The company uses the double-declining-balance method of depreciation for the equipment. • Factory equipment at an invoice price of $880,000 plus shipping costs of $20,000. The equipment has an estimated useful life of 100,000 hours and no residual value. The company uses the units-of-production method of depreciation for the equipment. • A patent at a cost of $330,000 with an estimated useful life of 15 years. The company uses the straight-line method of amortization for intangible assets with no residual value. The company's year ends on December 31. Required: 1-a. Prepare a partial depreciation schedule of office equipment for 2019, 2020, and 2021. 1-b. Prepare a partial depreciation schedule of factory equipment. The company used the equipment for 8,000 hours in 2019, 9,200 hours in 2020, and 8,900 hours in 2021. 2. On January 1, 2022, Sanders altered its corporate strategy dramatically. The company sold the factory equipment for $700,000 in cash. Record the entry related to the sale of the factory equipment. 3. On January 1, 2022, when the company changed its corporate strategy, its patent had estimated future cash flows of $210,000 and a fair value of $190,000. What would the company report on the income statement (account and amount) regarding the patent on January 1, 2022?
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.
Sanders Company purchased the following on January 1, 2019:
• Office equipment at a cost of $60,000 with an estimated useful life to the company of three years and a residual value of $15,000. The company uses the double-declining-balance method of
• Factory equipment at an invoice price of $880,000 plus shipping costs of $20,000. The equipment has an estimated useful life of 100,000 hours and no residual value. The company uses the units-of-production method of depreciation for the equipment.
• A patent at a cost of $330,000 with an estimated useful life of 15 years. The company uses the straight-line method of amortization for intangible assets with no residual value.
The company's year ends on December 31.
Required:
1-a. Prepare a partial depreciation schedule of office equipment for 2019, 2020, and 2021.
1-b. Prepare a partial depreciation schedule of factory equipment. The company used the equipment for 8,000 hours in 2019, 9,200 hours in 2020, and 8,900 hours in 2021.
2. On January 1, 2022, Sanders altered its corporate strategy dramatically. The company sold the factory equipment for $700,000 in cash. Record the entry related to the sale of the factory equipment.
3. On January 1, 2022, when the company changed its corporate strategy, its patent had estimated future cash flows of $210,000 and a fair value of $190,000. What would the company report on the income statement (account and amount) regarding the patent on January 1, 2022?
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