Concept explainers
1.
Prepare a schedule screening the
1.
Explanation of Solution
Depreciation expense: Depreciation expense is a non-cash expense, which is recorded on the income statement reflecting the consumption of economic benefits of long-term asset on account of its wear and tear or obsolesces.
Straight-line depreciation method: The depreciation method which assumes that the consumption of economic benefits of long-term asset could be distributed equally throughout the useful life of the asset is referred to as straight-line method.
Sum-of- the-years’ digits method: Sum-of-the years’ digits method determines the depreciation by multiplying the depreciable base and declining fraction.
Double-declining-balance method: The depreciation method which assumes that the consumption of economic benefits of long-term asset is high in the early years but gradually declines towards the end of its useful life is referred to as double-declining-balance method.
Prepare a schedule screening the depreciation expense, amortization expense, accumulated depreciation and amortization for each asset that would appear on the income statement and balance sheet of Company B for the year ended December 31, 2016 as follows:
Depreciation and amortization expense:
Company B | |
Depreciation and amortization expense | |
For the year ended December 31, 2016 | |
Particulars | $ |
Depreciation expense for building (1) | $56,214 |
Depreciation expense for equipment and machinery (6) | $103,775 |
Depreciation expense for automotive equipment (10) | $21,000 |
Amortization expense for leasehold improvements (11) | $16,800 |
Total depreciation and amortization expense for 2016 | $197,789 |
Table (1)
Accumulated depreciation and amortization:
Company B | ||
Accumulated depreciation and amortization | ||
December 31, 2016 | ||
Particulars | Amount | Amount |
Accumulated depreciation-Building: | ||
Balance, January 1, 2016 | $263,100 | |
Add: Depreciation expense for 2016 | $56,214 | |
Balance, December 31, 2016 | $319,314 | |
Accumulated depreciation-Machinery and equipment: | ||
Balance, January 1, 2016 | $250,000 | |
Add: Depreciation expense for 2016 | $103,775 | |
Sub-total | $353,775 | |
Less: Machine destroyed by fire (12) | $11,500 | |
Balance, December 31, 2016 | $342,275 | |
Accumulated depreciation-Automotive equipment: | ||
Balance, January 1, 2016 | $84,600 | |
Add: Depreciation expense for 2016 | $21,000 | |
Sub-total | $105,600 | |
Less: Sold car during the year (13) | $6,300 | |
Balance, December 31, 2016 | $99,300 | |
Accumulated amortization-Leasehold improvements: | ||
Amortization for 2016 | $16,800 | |
Total accumulated depreciation and amortization for 2016 | $777,689 |
Table (2)
Working note (1):
Compute the depreciation rate:
Useful life = 25 years
Working note (2):
Calculate the depreciation expense of building under 150%-declining balance method.
Working note (3):
Calculate the depreciation expense of remaining machinery under
Working note (4):
Calculate the depreciation expense for machine destroyed by fire under straight line method.
Working note (5):
Calculate the depreciation expense for new machinery under straight line method.
Working note (6):
Calculate the total depreciation expense for machinery for 2016.
Working note (7):
Calculate the denominator of the fraction for sum-of-the-year’s digit.
Working note (8):
Calculate the depreciation expense of sold car under the sum-of the year’s digit method.
Working note (9):
Calculate the depreciation expense of car under the sum-of the year’s digit method.
Working note (10):
Calculate the total depreciation expense of automotive equipment under the sum-of the year’s digit method.
Working note (11):
Calculate the amortization expense of leasehold improvements.
Working note (12):
Calculate the accumulated depreciation for machine destroyed by fire.
Working note (13):
Calculate the accumulated depreciation for sold car.
2.
Prepare a schedule screening the gain or loss from disposal of assets of Company B that would appear on the income statement for the year ended December 31, 2016.
2.
Explanation of Solution
Prepare a schedule screening the gain or loss from disposal of assets of Company B that would appear on the income statement for the year ended December 31, 2016 as follows:
Company B | ||
Gain or loss from disposal of assets | ||
For the year ended December 31, 2016 | ||
Particulars | Amount | Amount |
Gain on machinery destroyed by fire: | ||
Insurance recovery | $15,500 | |
Less: Book value of machine (12) | $11,500 | $4,000 |
Less: Loss on car traded in on new car purchase | ||
Book value of the traded car | $2,700 | |
Less: Trade in allowed | $2,000 | $700 |
Net gain on asset disposal for 2016 | $3,300 |
Table (3)
3.
Prepare the balance sheet of Company B and show the property, plant and equipment section as on December 31, 2016.
3.
Explanation of Solution
Prepare the balance sheet of Company B and show the property, plant and equipment section as on December 31, 2016 as follows:
Company B | |||
Balance sheet (partial) | |||
Property, plant and equipment section | |||
December 31, 2016 | |||
Particulars | Cost (A) |
Accumulated depreciation and amortization ( B) |
Book value |
Land | $150,000 | 0 | $150,000 |
Building | $1,200,000 | $319,214 | $880,686 |
Machinery and equipment | $1,187,000 (14) | $342,275 | $844,725 |
Automotive equipment |
$118,000 (15) | $99,300 | $18,700 |
Leasehold improvements | $168,000 | $16,800 | $151,200 |
Totals | $2,823,000 | $777,689 | $2,045,311 |
Table (4)
Working note (14):
Calculate the cost of machinery and equipment:
Particulars | Amount |
Machinery balance on January 1, 2016 | $900,000 |
Add: Machinery purchased during 2016 | $310,000 |
Sub total | $1,210,000 |
Less: Machine destroyed by fire | $23,000 |
Closing balance on December 31, 2016 | $1,187,000 |
Table (5)
Working note (15):
Calculate the cost of automotive equipment:
Particulars | Amount |
Automotive equipment balance on January 1, 2016 | $115,000 |
Add: Car purchased during 2016 | $12,000 |
Sub total | $127,000 |
Less: Car traded during 2016 | $9,000 |
Closing balance on December 31, 2016 | $118,000 |
Table (6)
Want to see more full solutions like this?
Chapter 11 Solutions
Bundle: Intermediate Accounting: Reporting And Analysis, 2017 Update, Loose-leaf Version, 2nd + Lms Integrated Cengagenowv2, 2 Terms Printed Access Card
- On May 1, 2015, Zoe Inc. purchased Branta Corp. for $15,000,000 in cash. They only received $12,000,000 in net assets. In 2016, the market value of the goodwill obtained from Branta Corp. was valued at $4,000,000, but in 2017 it dropped to $2,000,000. Prepare the journal entry for the creation of goodwill and the entry to record any impairments to it in subsequent years.arrow_forwardJada Company had the following transactions during the year: Purchased a machine for $500,000 using a long-term note to finance it Paid $500 for ordinary repair Purchased a patent for $45,000 cash Paid $200,000 cash for addition to an existing building Paid $60,000 for monthly salaries Paid $250 for routine maintenance on equipment Paid $10,000 for major repairs Depreciation expense recorded for the year is $25,000 If all transactions were recorded properly, what is the amount of increase to the Property, Plant, and Equipment section of Jadas balance sheet resulting from this years transactions? What amount did Jada report on the income statement for expenses for the year?arrow_forwardJersey Corporation, which has a calendar year accounting period, purchased a machine for $400,000 on April 1, 2016. At that time Jersey expected to use the machine for nine years and then sell it for $4,000. The machine was sold for $22,000 on Sept. 30, 2021. Assuming straight-line depreciation, calculate the gain(/(loss) at the sale of the machine.arrow_forward
- Presented below are selected transactions for Rangers Ltd during the year 2021. 1 Jan. Sold equipment that was purchased on 1 July 2017. The equipment which cost $36,000 had a useful life of 10 years with no residual value. The equipment was sold for $18,000 on cash. 1 April Purchased motor vehicle on cash at $60,000. The motor vehicle is expected to have 10 years useful life with no residual value. 30 June Sold a machinery for $30,600 on cash that was purchased on 1 July 2015. The machinery cost $64,800 and was depreciated based on a 8-year useful life with a $10,800 residual value. 31 Dec. Sold land on cash for $800,000. The land was bought at $300,000 three years ago. Required: a) Ignore GST. Journalize all entries required on the above dates, including entries to update depreciation on assets disposed of, where applicable. Rangers Ltd uses straight-line depreciation method for all its depreciable assets. The reporting period…arrow_forwardThe following information applies to the questions displayed below.] On April 1, 2016, Cyclone's Backhoe Co. purchases a trencher for $312,000. The machine is expected to last five years and have a salvage value of $56,000. Compute depreciation expense for both years ending December 2016 and 2017 assuming the company uses the double-declining-balance method. (Enter all amounts positive values.)arrow_forwardBraxton Technologies, Inc. constructed a conveyor for A&G Warehousers that was completed and ready for use on January 1, 2016. A&G paid for the conveyor by issuing a $100,000, four-year bond that specified 5% interest to be paid on December 31 of each year, and the bond is to be repaid at the end of four years. The conveyor was custom-built for A&G, so its cash price was unknown. By comparison with similar transactions, it was determined that a reasonable interest rate was 10%. Required: 1. Prepare the journal entry for A&G's purchase of the conveyor on January 1, 2016. 2. Prepare an amortization schedule for the four-year term of the note. 3. Prepare the journal entry for A&G's third interest payment on December 31, 2018arrow_forward
- The Collins Corporation purchased office equipment at the beginning of 2014 and capitalized a cost of $2,000,000. This cost included the following expenditures: Purchase price $1,850,000 Freight charges 30,000 Installation charges 20,000 Annual maintenance charge 100,000 Total $2,000,000 The company estimated an eight-year useful life for the equipment. No residual value is anticipated. The double-declining-balance method was used to determine depreciation expense for 2014 and 2015. In 2016, after the 2015 financial statements were issued, the company decided to switch to the straight-line depreciation method for this equipment. At that time, the company’s controller discovered that the original cost of the equipment incorrectly included one year of annual maintenance charges for the equipment. Required: 1. Ignoring income taxes, prepare the appropriate correcting entry for the equipment capitalization error discovered in 2016. 2. Ignoring income taxes, prepare any 2016 journal…arrow_forwardCollins Corporation purchased office equipment at the beginning of 2014 and capitalized a cost of $2,000,000. This cost figure included the following expenditures: Purchase price $1,850,000 Freight charges 30,000 Installation charges 20,000 Annual maintenance charge 100,000 Total $2,000,000 The company estimated an eight-year useful life for the equipment. No residual value is anticipated. The double-declining-balance method was used to determine depreciation expense for 2014 and 2015. In 2016, after the 2015 financial statements were issued, the company decided to switch to the straight-line depreciation method for this equipment. At that time, the company’s controller discovered that the original cost of the equipment incorrectly included one year of annual maintenance charges for the equipment. Required: 1. Ignoring income taxes, prepare the appropriate correcting entry for the equipment capitalization error discovered in 2016. 2. Ignoring income taxes, prepare any 2016 journal…arrow_forwardOn January 2, 2015, Roth, Inc. purchased a laser cutting machine to be used in the fabrication of a part for one of its key products. The machine cost $90,000, and its estimated useful life was four years or 850,000 cuttings, after which it could be sold for $5,000. Required Calculate each year’s depreciation expense (2015-2019) for the machine's useful life under each of the following depreciation methods (round all answers to the nearest dollar):1. Straight-line.2. Double-declining balance.3. Units-of-production. (Assume annual production in cuttings of 200,000; 350,000; 260,000; and 40,000.) Assume that the machine was purchased on July 1, 2015. Calculate each year’s (2015-2019) depreciation expense for the machine's useful life under each of the following depreciation methods:1. Straight-line.2. Double-declining balance.arrow_forward
- Carolina Co. purchased a machine at a cost of $780,000 on January 1, 2016. On January 1, 2021, the balance of the Accumulated depreciation account on this old machine is $320,000; On that day, Carolina exchanged this old machine for a new machine (the transaction has commercial substance) which has a market value of $432,000. In addition, Carolina received $48,000 cash in the exchange. Instructions (1) Prepare all the necessary journal entries for Carolina Co. on January 1, 2021. (2) Now, assume that the transaction lacks commercial substance and prepare all the necessary journal entries on January 1, 2021.arrow_forwardOn April 1, 2016, Cyclone's Backhoe Co. purchases a trencher for $288,000. The machine is expected to last five years and have a salvage value of $44,000. Compute depreciation expense for both years ending December 2016 and 2017 assuming the company uses the straight-line method.arrow_forwardThe BAKAL Company purchased a machine on November 1, 2011, for P148,000. At the time of acquisition, the machine was estimated to have a useful life of ten years and an estimated salvage value of P4,000.BAKAL has recorded monthly depreciation using the straight-line method. On July 1, 2020, the machine was sold for P13,000. Your audit shows that the accountant record the sale by debiting cash P13,000 and crediting machine P13,000. What should be the loss recognized from the sale of the machine to correct the record? Answer in figures, ignore peso sign.arrow_forward
- Intermediate Accounting: Reporting And AnalysisAccountingISBN:9781337788281Author:James M. Wahlen, Jefferson P. Jones, Donald PagachPublisher:Cengage LearningPrinciples of Accounting Volume 1AccountingISBN:9781947172685Author:OpenStaxPublisher:OpenStax College