   Chapter 11, Problem 7P ### Intermediate Accounting: Reporting...

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

#### Solutions

Chapter
Section ### Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281
Textbook Problem
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# Dinnell Company owns the following assets: In the year of acquisition and retirement of an asset, Dinnell records depreciation expense for one-half year. During 2020, Asset A was sold for $7,000.Required:Prepare the journal entries to record depreciation on each asset for 2017 through 2020 and the sale of Asset A. Round all answers to the nearest dollar. To determine Prepare necessary journal entries of Company D for 2017 through 2020. Explanation Depreciation expense: Depreciation expense is a non-cash expense, which is recorded on the income statement reflecting the consumption of economic benefits of long-term asset on account of its wear and tear or obsolesces. Straight-line depreciation method: The depreciation method which assumes that the consumption of economic benefits of long-term asset could be distributed equally throughout the useful life of the asset is referred to as straight-line method. Sum-of- the-years’ digits method: Sum-of-the years’ digits method determines the depreciation by multiplying the depreciable base and declining fraction. Double-declining-balance method: The depreciation method which assumes that the consumption of economic benefits of long-term asset is high in the early years but gradually declines towards the end of its useful life is referred to as double-declining-balance method. Prepare necessary journal entries of Company D for 2017 through 2020 as follows:  Date Account Title & Explanation Debit ($) Credit($) Asset A: 2017 Depreciation expense (2) 1,800 Accumulated depreciation 1,800 (To record the depreciation expense incurred at the end of the accounting year) 2018 Depreciation expense (1) 3,600 Accumulated depreciation 3,600 (To record the depreciation expense incurred at the end of the accounting year) 2019 Depreciation expense (1) 3,600 Accumulated depreciation 3,600 (To record the depreciation expense incurred at the end of the accounting year) 2020 Depreciation expense (2) 1,800 Accumulated depreciation 1,800 (To record the depreciation expense incurred at the end of the accounting year) Cash 7,000 Accumulated depreciation (3) 10,800 Loss on disposal of property, plant and equipment [$20,000−$10,800−$7,000] 2,200 Machinery/Equipment 20,000 (To record the sale of Asset A) Asset B: 2018 Depreciation expense (6) 4,444 Accumulated depreciation 4,444 (To record the depreciation expense incurred at the end of the accounting year) 2019 Depreciation expense ($4,444+$3,889) 8,333 Accumulated depreciation 8,333 (To record the depreciation expense incurred at the end of the accounting year) 2020 Depreciation expense ($3,889+$3,333) 7,222 Accumulated depreciation 7,222 (To record the depreciation expense incurred at the end of the accounting year) Asset C: 2019 Depreciation expense (8) 10,000 Accumulated depreciation 10,000 (To record the depreciation expense incurred at the end of the accounting year) 2020 Depreciation expense (9) 18,000 Accumulated depreciation 18,000 (To record the depreciation expense incurred at the end of the accounting year)

Table (1)

Working note (1):

Calculate the annual depreciation expense for Asset A under straight line method.

Depreciation expenses=Acquisition cost – Residual valueUseful life =$20,000$2,0005 years=$3,600 per year Working note (2): Calculate the half-year depreciation expense for Asset A under straight line method. Depreciation expenses=[Acquisition cost – Residual valueUseful life×12] =$20,000$2,0005 years×12=$1,800

Working note (3):

Calculate the accumulated depreciation of asset A

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