Please Slove it all!!! Blueprint Problem: Fixed Assets and Straight-line Depreci
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Please Slove it all!!!
Blueprint Problem: Fixed Assets and Straight-line Depreciation
Nature and Measurement of Fixed Assets
Fixed assets are assets with long lives (greater than one year) that are used in the normal operations of a business to generate revenue. These assets are tangible assets with a limited life (except for land) that are not intended for resale. A fixed asset should be recorded at its cost. This cost includes not only the purchase price but also any expenditures necessary to prepare it for its intended use. Costs that do not increase the asset’s usefulness or are recurring in nature should not be included. If several fixed assets are purchased as a group, the cost of each asset purchased must be measured and recorded separately.
An example of a fixed asset would be Selectaccounts payablea truckinventoryCorrect 1 of Item 1. Fixed assets are reported on the Selectbalance sheetincome statementCorrect 2 of Item 1 in the Selectcurrent assetsnoncurrent assetsoperating expensesCorrect 3 of Item 1 section. Expenditures necessary to purchase and prepare a fixed asset for its intended use are Selectexpensed immediatelyto be capitalizedCorrect 4 of Item 1. Fixed assets purchased as a group should have Selecta single group accountmarket value as their costseparate ledger accountsCorrect 5 of Item 1.
Which of the following should be included in the cost of a fixed asset.
The Nature and Measurement of Depreciation
Depreciation is the process by which an asset’s cost is allocated to expense over the asset’s useful life and matched with the revenues that it helped to earn. All fixed assets are depreciated with one exception—land. Depreciation is recorded with a debit to Depreciation Expense (an expense) and a credit to Accumulated Depreciation (a contra-asset). The difference between the historical cost of the asset and its accumulated depreciation is known as the asset’s book value. The acquisition cost must be accurately measured; the useful life and the salvage value must be estimated to calculate depreciation. The difference between the cost of the asset and the salvage value is known as the depreciable cost. The depreciable cost is the amount that will be expensed over the asset’s life.
Determine whether the following statements are true or false.
Straight-Line Depreciation
The straight-line method spreads the depreciable cost of an asset evenly over its useful life. It is the simplest method to calculate depreciation expense. Simply divide the asset’s depreciable cost by its useful life, in years. The result is the annual depreciation expense, which is also the amount by which accumulated depreciation increases each year.
The formula to compute the depreciation expense under the straight line method is as follows:
Assume that a truck has an acquisition cost of $31,500. Its useful life is estimated to be five years, and the estimated salvage value is $1,500. Depreciation expense is calculated as follows:
The annual depreciation amount works out nicely for assets purchased at the beginning of the period. But what if an asset is purchased sometime during the year, other than on the first day? Under the matching principle, depreciation can only be recognized for the portion of the year that the asset was in service. When this happens, a partial year’s depreciation must be calculated. The annual depreciation expense for the first year is prorated—part being recognized in the first year, the remainder to be recognized in the final year.
Therefore, when an asset is purchased midyear, the sum of first and final years’ depreciation is equal to one full year’s depreciation. Keep in mindthat the total depreciation expense that can be recognized over the life of the asset is its depreciable cost. This means that the balance in Accumulated Depreciation can never exceed depreciable cost.
+ Partial year’s depreciation
APPLY THE CONCEPTS: Measure and record the purchase of a fixed asset
On July 1, 2011, Petroxy Oil Corporation purchased new equipment from Acme Equipment Company that had a purchase price (including sales tax) of $89,700. Acme charged $2,000 to deliver the equipment and $8,000 to install it at Petroxy Oil’s site. Petroxy Oil’s accountant provided the payment for the equipment, delivery, and installation to Acme that day. Petroxy Oil had its own master-level employees perform trial runs on the equipment. This took 10 hours, and those employees earn $30 per hour. During the trial runs, there was some damage to one of the walls beside the equipment. Petroxy Oil’s maintenance staff repaired the wall. The cost for the maintenance wages was $100. All wages for trial runs and wall repair will be paid at the end of the following week.
Which of the following costs that Petroxy Oil will capitalize as part of the cost of the equipment?
Which of the following costs that Petroxy Oil will expense immediately?
Prepare the journal entry to record the purchase of the equipment.
+ Assets
+ Liabilities
+ Equity
+ Revenues/Gains
+ Expenses/Losses
GENERAL JOURNAL
Jul 1
99700
100
1000
130
How does each row of the above journal entry affect the accounting equation, and on which financial statement is it reported? If it is not affected then select "No effect" as correct answer.
APPLY THE CONCEPTS: Calculate and determine the entry for straight-line depreciation
The equipment purchased by Petroxy Oil Corporation (see the journal entry above) is expected to have a useful life of four years. At the end of its useful life, the residual value of the equipment is estimated to be $6,000. Petroxy Oil Corporation’s fiscal year ends each December 31.
In the table to the below, calculate the equipment’s depreciation expense, the balance of accumulated depreciation, and the book value for each year the equipment is expected to be in service, using the straight-line method.
Petroxy Oil prepares the entry to record depreciation each year on December 31. The accounts affected are Depreciation Expense and Accumulated Depreciation. Indicate how is the journal entry recorded, what effect does the entry have on the accounting equation, and on which financial statement is it reported in the table below. If it is not affected then select "No effect" as correct answer.
Commissions Selectincludednot includedCorrect 6 of Item 1 Sales taxes Selectincludednot includedCorrect 7 of Item 1 Closing costs Selectincludednot includedCorrect 8 of Item 1 Transportation costs Selectincludednot includedCorrect 9 of Item 1 Damage during setup Selectincludednot includedCorrect 10 of Item 1 Annual licensing Selectincludednot includedCorrect 11 of Item 1Explanation / Answer
Per Chegg guidelines 4 sub-parts have been answered.
Nature and Measurement of Fixed Assets An example of a fixed asset would be a truck. Fixed assets are reported on the balance sheet in the non-current assets. Expenditures necessary to purchase and prepare a fixed asset for its intended use are to be capitalized. Fixed assets purchased as a group should have separate ledger accounts.Related Questions
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