Wiater Company operates a small manufacturing facility. On January 1, 2018, an asset account for the company showed the following balances: Equipment $ 220,000 Accumulated Depreciation (beginning of the year) 101,500 During the first week of January 2018, the following expenditures were incurred for repairs and maintenance: Routine maintenance and repairs on the equipment $ 2,550 Major overhaul of the equipment that improved efficiency 31,000 The equipment is being depreciated on a straight-line basis over an estimated life of 20 years with a $17,000 estimated residual value. The annual accounting period ends on December 31. Required: Indicate the effects (accounts, amounts, and + for increase and − for decrease) of the following two items on the accounting equation, using the headings shown below. (Enter any decreases to Assets, Liabilities or Stockholder's Equity with a minus sign.) The adjustment for depreciation made last year at the end of 2017. The two expenditures for repairs and maintenance during January 2018. (Record each entry separately.) How would this effect the accounting equation for 2017 and 2018??
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.
Wiater Company operates a small manufacturing facility. On January 1, 2018, an asset account for the company showed the following balances:
| Equipment | $ | 220,000 | |
| Accumulated |
101,500 | ||
During the first week of January 2018, the following expenditures were incurred for repairs and maintenance:
| Routine maintenance and repairs on the equipment | $ | 2,550 | |
| Major overhaul of the equipment that improved efficiency | 31,000 | ||
The equipment is being depreciated on a straight-line basis over an estimated life of 20 years with a $17,000 estimated residual value. The annual accounting period ends on December 31.
Required:
Indicate the effects (accounts, amounts, and + for increase and − for decrease) of the following two items on the
-
The adjustment for depreciation made last year at the end of 2017.
-
The two expenditures for repairs and maintenance during January 2018. (Record each entry separately.)
How would this effect the accounting equation for 2017 and 2018??
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