value: 8.00 points Wiater Company operates a small manufacturing facility. On Ja
ID: 2567828 • Letter: V
Question
value: 8.00 points Wiater Company operates a small manufacturing facility. On January 1, 2015, an asset account for the company showed the following balances: Equipment Accumulated Depreciation (beginning of the year) $160,000 100,000 During the first week of January 2015, the following expenditures were incurred for repairs and maintenance Routine maintenance and repairs on the equipment Major overhaul of the equipment that improved efficiency $ 1,850 24,000 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 December 31. Required 1. Prepare the adjusting journal entry that would have been made at the end of 2014 for depreciation on the manufacturing equipment. (Do not round intermediate calculations. If no entry is required for a transaction/event, select "No Journal Entry Required" in the first account field.)Explanation / Answer
Solution:
Part 1 --- Journal Entry at the end of year 2014
Date
General Journal
Debit
Credit
Year end 2014
Depreciation Expense
$10,000
Accumulated Depreciation – Equipment
$10,000
Annual Depreciation using straight line method = (Cost of Asset – Salvage Value) / Estimated Useful life
= (160,000 – 10,000) / 15
= $10,000
Part 2 --- Starting at the beginning of 2015, the remaining estimated useful life of the Equipment is 5 Years.
Note – Total Accumulated Depreciation as on Dec 31, 2014 = $100,000
Annual Depreciation = $10,000
It means total 10 years depreciation has already been accumulated (100,000 / 10,000).
Total Useful Life = 15 Years
Equipment already used = 10 years
Remaining Useful Life
Part 3 --- Journal Entry in 2015
Transaction
General Journal
Debit
Credit
1)
Repair and Maintenance Expenses
$1,850
Cash or Accounts Payable
$1,850
2)
Equipment
$24,000
Cash or Accounts Payable
$24,000
Note – Routine Repair and Maintenance are recorded as normal expenses.
The expenses incurred on the fixed asset which extend the useful life of asset or improve the efficiency of the asset are recognized as Capital Expenditure and capitalized to the Fixed Asset.
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Date
General Journal
Debit
Credit
Year end 2014
Depreciation Expense
$10,000
Accumulated Depreciation – Equipment
$10,000
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