Apps R Us made a purchase of $20,000 worth of computer equipment. The equipment

Question

Apps R Us made a purchase of $20,000 worth of computer equipment. The equipment is expected to have a useful life of three years, and be worth $2,000 at the end of its useful life. They make a $5,000 down payment on the equipment, and finance the rest with a one-year loan at 12%.

What will the monthly depreciation be for the equipment?

When they purchase the equipment, what entries will show up on each of the financial statements (IS, BS, CF)?

At the end of the first month after the equipment is put into use, waht entries will show up on each of the financial statements?

Explanation / Answer

Answer 1 Depreciation per annum using straight line method = (Cost - Residual value) / useful life Depreciation per annum using straight line method = (20000 - 2000) / 3 = $6000 Depreciation per month = $6000 / 12 = $500 Answer 2 Entries at the time equipment purchase Income statement - No Entry Balance sheet Liability side In $ Asset Side In $ Loan 15000 Computer equipment 20000 cash -5000 Cash Flow In $ Investing Cash flow - Purchase of equipment -20000 Financing Cash flow - One year Loan 15000 Net Cash flow -5000 Answer 3 Entries at the end of first month after equipment is put to use Income statement Expenses In $ - Depreciation 500 Balance sheet Liability side In $ Asset Side In $ Computer equipment 20000 (-) Accumulated depreciation 500 Cash Flow - No entry

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