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1.) On January 1, 2013, the Holloran Corporation purchased a machine at a cost o

ID: 2380981 • Letter: 1

Question

1.) On January 1, 2013, the Holloran Corporation purchased a machine at a cost of $55,000.  The machine was expected to have a service life of 10 years and a $5,000 residual value.  The straight-line depreciation method was used.  In 2015 the estimate of residual value was revised from $5,000 to zero.  Depreciation for 2015 should be:


2.) In question 1, assume that instead of revising residual value, in 2015 the company switched to the SYD depreciation method.  Depreciation for 2015 should be:


3.) Jasper Inc. prepares its financial statements according to International Financial Reporting Standards.  At the end of its 2013 fiscal year, the company chooses to revalue its equipment.  The equipment cost $810,000, had accumulated depreciation of $360,000 at the end of the year after recording annual depreciation, and had a fair value of $495,000.  After the revaluation, the equipment account will have a balance of

Explanation / Answer

1.) On January 1, 2013, the Holloran Corporation purchased a machine at a cost of $55,000. The machine was expected to have a service life of 10 years and a $5,000 residual value. The straight-line depreciation method was used. In 2015 the estimate of residual value was revised from $5,000 to zero. Depreciation for 2015 should be:


Solution

Old depreciation amount = (55000-5000)/10= 5000

Book value in the beginning of 2015 = 55000-5000*2= 45000


Depreciation for 2015 = (45000-0)/8=$5625

2.) In question 1, assume that instead of revising residual value, in 2015 the company switched to the SYD depreciation method. Depreciation for 2015 should be:

Old depreciation amount = (55000-5000)/10= 5000

Book value in the beginning of 2015 = 55000-5000*2= 45000

Amount to be written of = $45,000 - 5,000 = 40,000

SYD = 1 + 2 + 3 + 4 + 5 +6+7+8= 36


3.) Jasper Inc. prepares its financial statements according to International Financial Reporting Standards. At the end of its 2013 fiscal year, the company chooses to revalue its equipment. The equipment cost $810,000, had accumulated depreciation of $360,000 at the end of the year after recording annual depreciation, and had a fair value of $495,000. After the revaluation, the equipment account will have a balance of

Solution

After the revaluation, the equipment account will have a balance of $495,000.


Reason - revaluation records the equipment a fair value


Depreciation for 2015 = 8/36*40000

=
$8888.89