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Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281

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Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281
Textbook Problem
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Comprehensive: Acquisition, Subsequent Expenditures, and Depreciation On January 2, 2019, Lapar Corporation purchased a machine for $50,000. Lapar paid shipping expenses of $500, as well as installation costs of $1,200. The company estimated that the machine would have a useful life of 10 years and a residual value of $3,000. On January 1, 2020, Lapar made additions costing $3,600 to the machine in order to comply with pollution-control ordinances. These additions neither prolonged the life of the machine nor increased the residual value.

Required:

  1. 1. If Lapar records depreciation expense under the straight-line method, how much is the depreciation expense for 2020?
  2. 2. Assume Lapar determines the machine has three significant components as shown below.

Chapter 11, Problem 5E, Comprehensive: Acquisition, Subsequent Expenditures, and Depreciation On January 2, 2019, Lapar

If Lapar uses IFRS, what is the amount of depreciation expense that would be recorded?

1.

To determine

Calculate the depreciation expense of the machine for 2020 under straight line method.

Explanation

Depreciation: Depreciation is a method of reducing the capitalized cost of long-lived operating assets or plant assets for the period the asset is used.

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.

Calculate the depreciation expense of machine for 2020 under straight line method as follows:

Depreciation expense for 2020 }[Ordinary depreciation expense per year (2)+Additional depreciation expense per year (3)]=$4,870+$400=$5,270

Working note (1):

Calculate the total cost of machinery

2.

To determine

Calculate the depreciation expense for the given components.

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