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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.
(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.
(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.
(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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