Concept explainers
• LO11–2
Howarth Manufacturing Company purchased a lathe on June 30, 2014, at a cost of $80,000. The residual value of the lathe was estimated to be $5,000 at the end of a five-year life. The lathe was sold on March 31, 2018, for $17,000. Howarth uses the
Required:
1. Prepare a schedule to calculate the gain or loss on the sale.
2. Prepare the
3. Assuming that Howarth had instead used the sum-of-the-years’-digits depreciation method, prepare the journal entry to record the sale.
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- P11.2 (LO 1,2) (Deprec. for partial periods - SL, Act., SYD, and Declining-Balance) The cost of equip. purchased by Charleston, Inc., on June 1, 2020, is $89,000. It is estimated that the machine will have a $5,000 salvage value at the end of it's service life. It's service life is estimated at 7 years, it's total working hours are estimated at 42,000, and it's total production is estimated at 525,000 units. During 2020, the machine was operated 6,000 hours and produced 55,000 units. During 2021, the machine was operated 5,500 hours and produced 48,000 units. Instructions: Compute deprec. expense on the machine for the year ending Dec. 31, 2020, and the year ending Dec. 31, 2021, using the following methods. A. Sum-of-the-years'-digits. B. Declining-balance (twice the straight-line rate).arrow_forwardQ.5 R&R, Inc., purchased a new machine on September 1, 2009, at a cost of $180,000. The machine’s estimated useful life at the time of the purchase was five years, and its residual value was $10,000. Instructions Prepare a complete depreciation schedule, beginning with calendar year 2009, under each of the methods listed below (assume that the half-year convention is used): Straight-line. 200 percent declining-balance. 150 percent declining-balance (not switching to straight-line).arrow_forwardEffect of depreciation on net income Tuttle Construction Co. specializes in building replicas of historic houses. Tim Newman, president of Tuttle Construction, is considering the purchase of various items of equipment on July 1, 2014, for 400,000. The equipment would have a useful life of five years and no residual value. In the past, all equipment has been leased. For tax purposes, Tim is considering depreciating the equipment by the straight-line method. He discussed the matter with his CPA and learned that, although the straight-line method could be elected, it was to his advantage to use the Modified Accelerated Cost Recovery System (MACRS) for tax purposes. He asked for your advice as to which method to use for tax purposes. 1. Compute depreciation for each of the years (2014, 2015, 2016, 2017, 2018, and 2019) of useful life by (a) the straight-line method and (b) MACRS. In using the straight-line method, one-half years depreciation should be computed for 2014 and 2019. Use the MACRS rates presented in Exhibit 9. 2. Assuming that income before depreciation and income tax is estimated to be 750,000 uniformly per year and that the income tax rate is 40%, compute the net income for each of the years 2014, 2015, 2016, 2017, 2018, and 2019 if (a) the straight-line method is used and (b) MACRS is used. 3. What factors would you present for Tims consideration in the selection of a depreciation method?arrow_forward
- Q.4 Swanson & Hiller, Inc., purchased a new machine on September 1, 2008 at a cost of $108,000. The machine’s estimated useful life at the time of the purchase was five years, and its residual value was $8,000. Instructions a. Prepare a complete depreciation schedule, beginning with calendar year 2008, under each of the methods listed below (assume that the half-year convention is used): 1. Straight-line. 2. 200 percent declining-balance. 3. 150 percent declining-balance, switching to straight-line when that maximizes the expense.arrow_forwardP11.2 (LO 1, 2) (Deprec. for partial periods - SL, Act., SYD, and Declining - Balance) The cost of equip. purchased by Charleston, Inc. on June 1, 2020, is $89,000. It is estimated that the machine will have a $5,000 salvage value at the end of it's service life. It's service life is estimated at 7 years, it's total working hours are estimated at 42,000, and it's total production is estimated at 525,000 units. During 2020, the machine was operated 6,000 hours and produced 55,000 units. During 2021, the machine was operated 5,500 hours and produced 48,000 units. Instructions: Compute deprec. expense on the machine for the year ending Dec. 31, 2020, and the year ending Dec. 31, 2021, using the following methods. a. Straight-line. b. Units-of-output. c. Working hours. d. Sum-of-the-years'-digits. e. Declining-balance (twice the straight-line rate).arrow_forwardE11.11B (L0 1,2) (Depreciation—Change in Estimate) Machinery purchased for $100,000 by Deer Co. in 2016 was originallyestimated to have a life of 10 years with a salvage value of $20,000 at the end of that time. Depreciation has been entered for5 years on this basis. In 2021, it is determined that the total estimated life should be 9 years with a salvage value of $6,000 at the endof that time. Assume straight-line depreciation.Instructions(a) Prepare the entry to correct the prior years’ depreciation, if necessary.(b) Prepare the entry to record depreciation for 2021.arrow_forward
- 7.2 A machine with a purchase price of $9,000 is to be depreciated over its useful working life of 8 years to a book value of zero, using diminishing value depreciation. What is the amount of depreciation in Year 2? a. $1688 b. $1788 c. $1425 d. $1125 Clear my choicearrow_forwardExercise 11-4 (Algo) Other depreciation methods LO11-21 [The following information applies to the questions displaved below.) On January 1, 2021, the Allegheny Corporation purchased equipment for $343,000. The estimated service life of the equipment is 10 years and the estimated residual value is $24,000. The equipment is expected to produce 296.000 units during its life. Required: Calculate depreciation for 2021 and 2022 using each of the following methods. Print Exercise 11-4 (Algo) Part 1 References 1. Sum-of-the-years'-digits (Do not round intermediate calculations. Round final answers to the nearest whole dollar amount.)arrow_forwardPQ16.02 Equipment with a cost of $450,000 has an estimated salvage value of $30,000 and an estimated life of 4 years or 10,000 hours. It is to be depreciated by the straight-line method. What is the amount of depreciation for the first full year, during which the equipment was used 2,700 hours?arrow_forward
- Q2) A. Mining Company purchased land on January1, 2015, at a cost of $2,200,000. It estimated that a total of 90,000 tons of mineral was available for mining. After it has detached all the mineral resources, the company will be required to reinstate. the property to its previous state because of strict environmental protection laws. It estimates the fair value of this restoration obligation at $110,000. It believes it will be able to sell the property afterwards for $150,000. It incurred developmental costs of $300,000 before it was able to do any mining. In 20105 resources removed totaled 35,000 tons. The company sold 30,000 Ions. Instructions Compute the following information for 2015. Per unit mineral cost. Total material cost of December 31, 2015, inventory. Total materials cost in cost of goods sold at December 31, 2015.arrow_forwardQ#04: A company XYZ has purchased a new CNC Machine which has a cost basis of $5,000 and 8-year depreciable life. The estimated salvage value of the machine is zero at the end of 8 years. Use the Declining Balance method to calculate the annual depreciation amounts when R = 1.5/N (150% DB method). Tabulate the annual depreciation amount and Book Value for each year.arrow_forwardQ.6 Millar, Inc., purchased a truck to use for deliveries and is attempting to determine how much depreciation expense would be recognized under three different methods. The truck cost $20,000 and is expected to have a value of $4,000 at the end of its five-year life. The truck is expected to be used at the rate of 10,000 miles in the first year, 20,000 miles in the second and third years, and 15,000 miles in the fourth and fifth years. Instructions Determine the amount of depreciation expense that will be recognized under each of the following depreciation methods in the first and second years of the truck’s useful life. A full year’s depreciation will be recognized in the first year the truck is used. Straight-line. Double-declining-balance. Q.7 R&R, Inc., purchased a new machine on September 1, 2009, at a cost of $180,000. The machine’s estimated useful life at the time of the purchase was five years, and its residual value was $10,000. Instructions Prepare a complete…arrow_forward
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