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Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881

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BuyFindarrow_forward

Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881
Textbook Problem
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Expenditures After Acquisition

Pasta, a restaurant specializing in fresh pasta, installed a pasta cooker in early 2017 at a cost of $12,400. The cooker had an expected life of 5 years and a residual value of $900 when installed. As the restaurant’s business increased, it became apparent that renovations would be necessary so the cooker’s output could be increased. In January 2020, pasta $8,200 to install new heating equipment and $4,100 to add pressure-cooking capability. After these renovations, Pasta estimated that the remaining useful life of the cooker was 10 years and that the residual value was now $1,500.

Required:

1. Compute 1 year’s straight-line depreciation expense on the cooker before the renovations.

2. Assume that 3 full years of straight-line depreciation expense had been recorded on the cooker before the renovations were made. Compute the book value of the cooker immediately after the renovations were made.

3. Compute 1 year’s straight-line depreciation expense on the renovated cooker.

To determine

(a)

Introduction:

Depreciation means decrease in the value of asset within its useful life due to wear and tear of asset or the asset becomes obsolete. Long-term assets are depreciated by business. Depreciation does not involve cash transaction rather it shows how much the asset value has been used over a period.

To find: The depreciation using straight line method for 1 year on the cooker before renovations are made.

Explanation

Amount of depreciation= Costresidua<

To determine

(b)

Introduction:

Depreciation means decrease in the value of asset within its useful life due to wear and tear of asset or the asset becomes obsolete. Long-term assets are depreciated by business. Depreciation does not involve cash transaction rather it shows how much the asset value has been used over a period.

To find:

The book value of the cooker immediately after the renovations were made.

To determine

(c)

Introduction:

Depreciation means decrease in the value of asset within its useful life due to wear and tear of asset or the asset becomes obsolete. Long-term assets are depreciated by business. Depreciation does not involve cash transaction rather it shows how much the asset value has been used over a period.

To compute:

The depreciation using straight-line method on the renovated cooker.

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