Wiater Company operates a small manufacturing facility. On Jan. 1,2010, an asset

Question

Wiater Company operates a small manufacturing facility. On Jan. 1,2010, an asset account for the company showed the following balances:
Manufacturing equipment $160,000
Accumulated depreciation through2009 $110,000
During the first week of Jan 2010, the following expenditures were incurred for repairs and maintenance:
Routine Maintenance and repairs on the equipment $1850
Major overhaul of the equipment that improved efficiency $21,000
The equipment is being depreciated on a straight-line basis over an estimated life of 15 years with a $10,000 estimated residual value. The annual accounting period ends on Dec. 31. Indicate the effects (accounts, amounts, and + or -) of the following two items on the accounting equation, using the headings shown below. 1) The adjusments for depreciation made at the end of 2009. 2) The two expenditures for repairs and maintenace during January 2010.
Item Assets + Liabilities + Stockholders' Equity

Explanation / Answer

1. Manufacturing Equipment = $160,000 Less: Accumulated Depreciation = $110,000 Book Value of The Equipment = $50,000 2. Routine Maintenance & repairs on the Equipment = $1,850 This Repairs and Maintanance expence has to treate as current year expenses and it has to show in debit side of the profit and loss account. Major overhaul of the equipment that improve the efficiency = $21,000 These expenses has to capitalise and deduct as a depreciation in yearly basis Expenses = $21,000 Estimated remain life of the asset = 15 Years Depreciation = 21000 / 15 = $1,400 Example: Depreciation on the Equipment Yearly normal Depreciation = $+++++ Add: Depreciation of Expenses = $1400 Total Depreciation = ++++++++ This $1400 amount has to add yearly depreciation of asset and deduct from the book value of the asset. and it has to show in debit side of the profit and loss account as depreciation on the equipment. Routine Maintenance & repairs on the Equipment = $1,850 This Repairs and Maintanance expence has to treate as current year expenses and it has to show in debit side of the profit and loss account. Major overhaul of the equipment that improve the efficiency = $21,000 These expenses has to capitalise and deduct as a depreciation in yearly basis Expenses = $21,000 Estimated remain life of the asset = 15 Years Depreciation = 21000 / 15 = $1,400 Example: Depreciation on the Equipment Yearly normal Depreciation = $+++++ Add: Depreciation of Expenses = $1400 Total Depreciation = ++++++++ This $1400 amount has to add yearly depreciation of asset and deduct from the book value of the asset. and it has to show in debit side of the profit and loss account as depreciation on the equipment.
Thank you.... Manufacturing Equipment = $160,000 Less: Accumulated Depreciation = $110,000 Book Value of The Equipment = $50,000

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