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Capital expenditure and depreciation; parital-year depreciation Willow Creek Company purchased and installed carpet in its new general offices on April 30 for a total cost of $18,000. The carpet is estimated to have a 15-year useful life and no residual value. a. Prepare the journal entry necessary for recording the purchase of the new carpet. b. Record the December 31 adjusting entry for the partial-year depreciation expense for the carpet, assuming that Willow Creek uses the straight-line method.

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Accounting

27th Edition
WARREN + 5 others
Publisher: Cengage Learning,
ISBN: 9781337272094
BuyFind

Accounting

27th Edition
WARREN + 5 others
Publisher: Cengage Learning,
ISBN: 9781337272094

Solutions

Chapter
Section
Chapter 10, Problem 10.16EX
Textbook Problem

Capital expenditure and depreciation; parital-year depreciation

Willow Creek Company purchased and installed carpet in its new general offices on April 30 for a total cost of $18,000. The carpet is estimated to have a 15-year useful life and no residual value.

a. Prepare the journal entry necessary for recording the purchase of the new carpet.

b. Record the December 31 adjusting entry for the partial-year depreciation expense for the carpet, assuming that Willow Creek uses the straight-line method.

Expert Solution

a.

To determine

Capital expenditure: It refers to the amount spent on acquiring, maintaining, and improving the fixed assets that increases its productivity or extends useful life. It provides benefits in the future period.

Straight-line Depreciation: Under the straight-line method of depreciation, the same amount of depreciation is allocated every year over the estimated useful life of an asset. The formula to calculate the depreciation cost of the asset using the residual value is shown as below:

Depreciation = (Cost of the assetResidual value)Estimated useful life of the asset

To prepare: the journal entry for the capital expenditure incurred for purchase of a new carpet.

Explanation of Solution

  • Carpet is an asset and is increased due to the amount spent to purchase a carpet. Therefore, Carpet account is debited with $18,000...
Expert Solution

b.

To determine

To record: the adjusting entry for the partial-year depreciation expense for the carpet on December 31.

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