Concept explainers
Straight-line
• LO11–2, LO11–5
The property, plant, and equipment section of the Jasper Company’s December 31, 2017, balance sheet contained the following:
Property, plant, and equipment: | ||
Land | $120,000 | |
Building | $ 840,000 | |
Less: |
(200,000) | 640,000 |
Equipment | 180,000 | |
Less: Accumulated depreciation | ? | ? |
Total property, plant, and equipment | ? |
The land and building were purchased at the beginning of 2013. Straight-line depreciation is used and a residual value of $40,000 for the building is anticipated.
The equipment is comprised of the following three machines:
The straight-line method is used to determine depreciation on the equipment. On March 31, 2018, Machine 102 was sold for $52,500. Early in 2018, the useful life of machine 101 was revised to seven years in total, and the residual value was revised to zero.
Required:
1. Calculate the accumulated depreciation on the equipment at December 31, 2017.
2. Prepare the
3. Prepare a schedule to calculate the gain or loss on the sale of machine 102.
4. Prepare the journal entry for the sale of machine 102.
5. Prepare the 2018 year-end journal entries to record depreciation on the building and equipment.
(1)
Depreciation:
The decrease in the value of fixed tangible assets due to its use is known as depreciation. It is the allocation of the cost of tangible fixed assets over the useful life of the asset.
To calculate: The accumulated depreciation on the equipment at December 31, 2017.
Explanation of Solution
Company J using straight line method of depreciation:
Straight-line method: It is a method of providing depreciation. In this method, depreciation is calculated as the fixed percentage of the original cost of the fixed asset. The amount of depreciation in this method remains same for all the years of the useful life of the asset. Therefore, the following formula is used to calculate depreciation of asset.
To calculate: The accumulated depreciation on the equipment at December 31, 2017.
Asset | Cost at 2016 ($) |
Estimated residual value | Estimated life of the asset | Number of years used |
Accumulated depreciation ($) |
(1) | (2) | (2a) |
(3) | (4) | (5) =
|
101 | 70 | 7000 | 10years | 36 | 18,900 |
102 | 80 | 8000 | 8 years | 18 | 13,500 |
103 | 30 | 3000 | 9 years | 4 | 1,000 |
Accumulated depreciation on 31, December 2017 | 33,400 |
Table (1)
(2)
To prepare: The journal entry to record the depreciation machine 102 up to the date of sale.
Explanation of Solution
Prepare a journal entry to record the depreciation on equipment 102.
Accounts title and explanation | Post Ref. | Debit ($) |
Credit ($) |
Depreciation expense (1) | 2,250 | ||
Accumulated Depreciation | 2,250 | ||
(To record the depreciation on equipment 102.) |
Table (2)
Working note:
(1) Calculate the depreciation on equipment 102 up to the date of sale.
Therefore depreciation up to the date of sale is $2,250.
(3)
To prepare: A schedule to calculate the gain or loss on the sale of machine 102.
Explanation of Solution
Prepare a schedule to calculate the gain or loss on sale of machine 102.
Particulars | Amount ($) | Amount ($) | Amount ($) |
Sales proceeds | 52,500 | ||
Less: Book value on 31/03/18 | |||
Cost | 80,000 | ||
Accumulated depreciation | (15,750) | 64,250 | |
Loss on sale of equipment 102 | 11,750 |
Table (2)
Calculate the accumulated depreciation
Particulars | Amount $ |
Depreciation through 31/12/17 | 13,500 |
Depreciation from 1/1/18 to 31/3/18 | 2,250 |
Accumulated depreciation | 15,750 |
Table (3)
(4)
To prepare: The journal entry for the sale of machine 102.
Explanation of Solution
Prepare the journal entry for the sale of machine 102.
Date | Account Title and Explanation | Post Ref. |
Debit ($) |
Credit ($) |
31/03/2018 | Cash | 52,500 | ||
Accumulated depreciation | 15,750 | |||
Loss on sale of the equipment 102 | 11,750 | |||
Equipment 102 | 80,000 | |||
(To record the sale of equipment 102.) |
Table (4)
- Cash is a current asset and increased due to sale of equipment 102. Thus, debit Cash account with $52,500.
- Accumulated depreciation is a contra asset. It increases the value of asset account. Thus, debit Accumulated Depreciation with $15,750.
- Loss on sale of equipment 102 decreases the value of shareholders equity. Thus, debit Loss on sale of equipment 102 with $11,750.
- Equipment 102 is an asset and decreases value of the assets due to sale. Thus, credit Equipment 102 with $80,000.
(5)
To prepare: The 2018 year-end journal entries to record depreciation on the building and equipment.
Explanation of Solution
Prepare a journal entry to record the depreciation on building.
Date | Accounts title and explanation | Post Ref. | Debit ($) |
Credit ($) |
31/12/2018 | Depreciation expense (1) | 40,000 | ||
Accumulated Depreciation – Building | 40,000 | |||
(To record the depreciation.) |
Table (5)
- Depreciation is an expense which decreases shareholders equity. Thus, debit Depreciation expense account with $40,000.
- Accumulated depreciation is a contra asset. It decreases the value of asset. Thus, credit accumulated depreciation with $40,000.
Working notes:
Determine the depreciation per year.
The land and building were purchased at the beginning of 2013. Straight-line depreciation is used and a residual value of $40,000 for the building is anticipated.
Therefore annual depreciation on building is $40,000.
Prepare a journal entry to record the depreciation on equipment.
Date | Accounts title and explanation | Post Ref. | Debit ($) |
Credit ($) |
Depreciation expense (2) | 15,775 | |||
Accumulated Depreciation | 15,775 | |||
(To record the depreciation.) |
Table (6)
- Depreciation expense which decreases shareholders equity. Thus, debit Depreciation expense with $15,775.
- Accumulated depreciation is a contra asset. It decreases the value of asset. Thus, credit accumulated depreciation with $15,775.
Working note:
Compute the deprecation on equipments.
Particulars | Amount ($) |
Amount ($) |
Equipment 101 | ||
Cost | 70,000 | |
Less: Accumulated depreciation | 18,900 | |
Book value, 12/31/17 | 51,100 | |
Revised remaining life (7 years – 3 years) | 12,775 | |
Equipment 103 (requirement 1) | 3,000 | |
Depreciation | 15,7775 |
Table (7)
Therefore depreciation on equipment’s is $15,775.
Want to see more full solutions like this?
Chapter 11 Solutions
INTMED.ACCT LOOSE W/CONNECT ACCESS
- 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. Straight-line. b. Units-of-output. c. Working hours. d. Sum-of-the-years'-digits. e. Declining-balance (twice the straight-line rate).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_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
- Exercise 9.3 (Algo) Depreciation for Partial Years (LO9-3) On August 3, Cinco Construction purchased special-purpose equipment at a cost of $7,600,000. The useful life of the equipment was estimated to be eight years, with an estimated residual value of $20,000. a. Compute the depreciation expense to be recognized each calendar year for financial reporting purposes under the straight-line depreciation method (half-year convention). b. Compute the depreciation expense to be recognized each calendar year for financial reporting purposes under the 200 percent declining-balance method (half-year convention) with a switch to straight-line when it will maximize depreciation expense. c. Which of these two depreciation methods (straight-line or double-declinin.arrow_forward7.2 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_forwardP10.5 (LO 2, 3, 5), AP At December 31, 2022, Grand Company reported the following as plant assets. Land $4,000,000Buildings $28,500,000 Less: Accumulated depreciation—buildings 12,100,000 16,400,000Equipment 48,000,000 Less: Accumulated depreciation—equipment 5,000,000 43,000,000Total plant assets $63,400,000During 2023, the following selected cash transactions occurred. April 1 Purchased land for $2,130,000.May 1 Sold equipment that cost $750,000 when purchased on January 1, 2019. The equipment was sold for $450,000.June 1 Sold land purchased on June 1, 2013 for $1,500,000. The land cost $400,000.July 1 Purchased equipment for $2,500,000.Dec. 31 Retired equipment that cost $500,000 when purchased on December 31, 2013.arrow_forward
- Q.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_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_forwardPQ16.05 A company has the following assets: Buildings and Equipment, less accumulated depreciation of $5,000,000 Patents Trademarks Land $25,000,000 2,400,000 10,000,000 12,000,000 Goodwill 2,000,000 Cash 8,000,000 The total amount reported under Property, Plant, and Equipment would be??arrow_forward
- H7. On January 1, 2016, Wheeler, Inc. purchased some equipment for $3,900. The equipment had an estimated life of five years and an expected residual value of $200. On July 1, 2018, the equipment was sold for $1,000. Wheeler uses straight-line depreciation. What was the amount of the loss or gain recognized in the sale? Group of answer choices $1,000 gain $1,850 gain $1,050 loss $3,900 loss Please show all step by step calculationarrow_forwardP9.3(a. Compute the original cost of machine ; and depreciation expense on Dec 31,2020) (b) (c)arrow_forwardQ.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_forward
- Accounting (Text Only)AccountingISBN:9781285743615Author:Carl Warren, James M. Reeve, Jonathan DuchacPublisher:Cengage Learning