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AccountingIntermediate Accounting: Reporting And Analysis3rd Edition

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Chapter 11, Problem 7P
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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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Dinnell Company owns the following assets:

Chapter 11, Problem 7P, Dinnell Company owns the following assets: In the year of acquisition and retirement of an asset,

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:

DateAccount Title & ExplanationDebit ($)Credit($)
Asset A:
2017Depreciation expense (2)1,800
 Accumulated depreciation1,800
 (To record the depreciation expense incurred at the end of the accounting year)
2018Depreciation expense (1)3,600
 Accumulated depreciation3,600
 (To record the depreciation expense incurred at the end of the accounting year)
2019Depreciation expense (1)3,600
 Accumulated depreciation3,600
 (To record the depreciation expense incurred at the end of the accounting year)
2020Depreciation expense (2)1,800 
 Accumulated depreciation 1,800
 (To record the depreciation expense incurred at the end of the accounting year)
 Cash7,000
 Accumulated depreciation (3)10,800
 

Loss on disposal of property, plant and equipment

[$20,000−$10,800−$7,000]

2,200
 Machinery/Equipment20,000
 (To record the sale of Asset A)
Asset B:
2018Depreciation expense (6)4,444
 Accumulated depreciation4,444
 (To record the depreciation expense incurred at the end of the accounting year)
2019Depreciation expense ($4,444+$3,889)8,333
 Accumulated depreciation8,333
 (To record the depreciation expense incurred at the end of the accounting year)
2020Depreciation expense ($3,889+$3,333)7,222
 Accumulated depreciation7,222
 (To record the depreciation expense incurred at the end of the accounting year)
Asset C:
2019Depreciation expense (8)10,000
 Accumulated depreciation10,000
 (To record the depreciation expense incurred at the end of the accounting year)
2020Depreciation expense (9)18,000
 Accumulated depreciation18,000
 (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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