1.
Calculate the
1.
Explanation of Solution
Straight-line depreciation method: The depreciation method which assumes that the consumption of economic benefits of long-term asset could be distributed equally throughout the useful life of the asset is referred to as straight-line method.
Sum-of- the-years’ digits method: Sum-of-the years’ digits method determines the depreciation by multiplying the depreciable base and declining fraction.
Double-declining-balance method: The depreciation method which assumes that the consumption of economic benefits of long-term asset is high in the early years but gradually declines towards the end of its useful life is referred to as double-declining-balance method.
Calculate the accumulated depreciation balance at December 31, 2016 for the given assets, and cross check its’ accuracy as follows:
Building:
Office machinery:
Year | Beginning book value (A) |
Depreciation rate (2) (B) | Depreciation expense |
Ending book value |
2014 | 20,000 | 20% | 4,000 | 16,000 |
2015 | 16,000 | 20% | 3,200 | 12,800 |
2016 | 12,800 | 20% | 2,560 | 10,240 |
Total | 9,760 |
Table (1)
Note: Ending book value of the prior year is considered as the beginning book value of current year.
Office fixtures:
Year | Depreciation base (3) (A) |
Faction (4) (B) | Depreciation expense |
Ending book value |
2014 | 25,000 | 8,333 | 21,667 | |
2015 | 25,000 | 6,667 | 15,000 | |
2016 | 25,000 | 5,000 | 10,000 | |
Total | 20,000 |
Table (2)
Working note (1):
Calculate the annual depreciation expense of building.
Working note (2):
Compute the depreciation rate:
Useful life = 10 years
Working note (3):
Calculate the depreciable base of office fixtures.
Working note (4):
Calculate the denominator of the fraction for sum-of-the-year’s digit.
2.
Prepare necessary
2.
Explanation of Solution
Prepare necessary journal entries for the given transaction for 2017 as follows:
Date | Account Title & Explanation | Debit ($) |
Credit ($) |
January 3, 2017 | Building | 30,000 | |
Cash | 30,000 | ||
(To record the purchase of building for cash) | |||
March 8, 2017 | Cash | 3,000 | |
Accumulate depreciation-Office machinery | 1,952 | ||
Office machinery | 4,000 | ||
Gain on disposal of office machinery (5) | 952 | ||
(To record a piece of office machinery sold during the year) | |||
May 17, 2017 | Office fixtures (6) | 5,640 | |
Office machinery (6) | 3,760 | ||
Repair expense | 230 | ||
Cash | 9,630 | ||
(To record office fixtures and machinery purchased during the year) | |||
August 10, 2017 | Depreciation expense (7) | 67 | |
Accumulated depreciation-Office fixtures | 67 | ||
(To record the depreciation expense incurred for office fixtures) | |||
August 10, 2017 | Office fixtures | 900 | |
Accumulated depreciation-Office fixtures (7) | 467 | ||
Cash | 700 | ||
Office fixtures | 600 | ||
Gain on disposal of office fixtures (8) | 67 | ||
(To record the office fixtures exchanged during the year ) | |||
October 20, 2017 | Repair expense | 125 | |
Cash | 125 | ||
(To record the repair expense incurred during the year) | |||
December 31, 2017 | Depreciation expense – Building (9) | 2,061 | |
Depreciation expense - Office machinery (14) | 2,390 | ||
Depreciation expense - Office fixtures (17) | 5,064 | ||
Accumulated depreciation-Building | 2,061 | ||
Accumulated depreciation-Office machinery | 2,390 | ||
Accumulated depreciation-Office fixtures | 5,064 | ||
(To record the depreciation expense of assets incurred at the end of the accounting year) |
Table (3)
Working note (5):
Calculate the gain on disposal of office machinery.
Working note (6):
Calculate the cost of office fixtures and office machinery.
Particulars | Appraisal value (A) | Total appraisal value (B) |
Proportion | Total purchase cost (D) |
Cost ($) |
Office fixtures | $6,000 | $10,000 | 60% |
$9,400 | $5,640 |
Office machinery | $4,000 | 10,000 | 40% | $9,400 | $3,760 |
Total | $10,000 | 100% | $9,400 |
Table (4)
Working note (7):
Calculate the depreciation expense of desk.
Year | Depreciation base |
Faction (4) (B) | Depreciation expense |
2014 | 500 | 167 | |
2015 | 500 | 133 | |
2016 | 500 | 100 | |
2017 | 500 | 67 | |
Total | 467 |
Table (5)
Working note (8):
Calculate the gain on disposal of desk.
Working note (9):
Calculate the depreciation expense of building at the end of the year 2017.
Working note (10):
Calculate the remaining office machinery at 2017.
Working note (11):
Calculate the depreciation expense of office machinery at the end of the year 2017.
Working note (12):
Calculate the depreciation expense for remaining office machinery under double declining balance method.
Working note (13):
Calculate depreciation expense of office machinery purchased during 2017 under double declining balance method.
Working note (14):
Calculate total depreciation expense of office machinery at 2017.
Working note (15):
Calculate the depreciation expense of remaining office fixtures under the sum of the year’s digit method.
Working note (16):
Calculate the depreciation expense of new office fixtures under the sum of the year’s digit method.
Working note (17):
Calculate the total depreciation expense for office fixtures.
3.
Prepare T-account for the accumulated depreciation, and calculate the ending balance of accumulated depreciation for the given assets.
3.
Explanation of Solution
Prepare T-account for the accumulated depreciation, and calculate the ending balance of accumulated depreciation as follows:
Accumulated depreciation - Building | |||
December 31, 2016 | 3,750 | ||
December 31, 2016 | $2,061 | ||
Clos. Bal. | $5,811 |
Accumulated depreciation – Office machinery | |||
July 3, 2017 | $1,952 | December 31, 2016 | 9,760 |
December 31, 2016 | $2,390 | ||
Clos. Bal. | $10,198 | ||
Accumulated depreciation – Office mixtures | |||
October 8, 2017 | 467 | December 31, 2016 | $20,000 |
October 8, 2017 | $67 | ||
December 31, 2016 | $5,064 | ||
Clos. Bal. | $24,664 |
Want to see more full solutions like this?
Chapter 11 Solutions
Cengagenowv2, 1 Term Printed Access Card For Wahlen/jones/pagach’s Intermediate Accounting: Reporting And Analysis, 2017 Update, 2nd
- Dinnell Company owns the following assets: In the year of acquisition and retirement of an asset, Dinnell records depreciation expense for one-half year. During 2020, Asset A was sold for 7,000. Required: Prepare the journal entries to record depreciation on each asset for 2017 through 2020 and the sale of Asset A. Round all answers to the nearest dollar.arrow_forwardAssume that Yousuf & Sons company purchased equipment for OMR 12000 on 31st December 2014. The company charging OMR 2400 depreciation per annum by following straight-line depreciation method. The company charged total depreciation till 31December 2017 is OMR 7200 and the company decided to sell this equipment for OMR 3500 on 31st Mar2018. Find out the profit or loss on sale of equipment and pass the journal entry in the books of Yousuf& Sons Company. a. Dr Cash A/C OMR 3500 Dr Accumulated depreciation OMR 7800 Dr Loss on sale of equipment OMR 700 and Equipment A/c OMR 12000 b. Dr Cash A/C OMR 3500 Dr Accumulated depreciation OMR 7800 and Cr Equipment A/C 11300 c. None of the given options d. Dr Cash OMR 3500 Dr Accumulated depreciation OMR 7200 Dr Loss on sale of Equipment OMR 1300 and Cr Equipment A/C 12000arrow_forwardOn September 16, 2015, Familiar 1 Company purchased machinery for P 7,600,000. Residual value was estimated to be P 400,000. The machinery is depreciated over eight years using the sum of years’ digits method. Depreciation is computed on the basis of the nearest full month. What amount should be recorded as depreciation 2016? a. 1,636,120 b. 1,553,800 c. 1,550,000 d. 1,400,000arrow_forward
- Day SA acquired the following assets in January 2017. Equipment, estimated service life, 5 years; residual value, P15,000 P465,000 Building, estimated service life, 30 years; no residual value P780,000 The equipment has been depreciated using the sum-of-the-years'-digits method for the first 3 years for financial reporting purposes. In 2020, the company decided to change the method of computing depreciation to the straight-line method for the equipment, but no change was made in the estimated service life or residual value. It was also decided to change the total estimated service life of the building from 30 years to 40 years, with no change in the estimated residual value. The building is depreciated on the straight-line method. Required Prepare the journal entry to record depreciation expense for the equipment in 2020. Prepare the journal entry to record depreciation expense for the building in 2020. (Round to nearest peso.)arrow_forwardDay SA acquired the following assets in January 2017. Equipment, estimated service life, 5 years; residual value, P15,000 P465,000Building, estimated service life, 30 years; no residual value P780,000 The equipment has been depreciated using the sum-of-the-years'-digits method for the first 3 years for financial reporting purposes. In 2020, the company decided to change the method of computing depreciation to the straight-line method for the equipment, but no change was made in the estimated service life or residual value. It was also decided to change thetotal estimated service life of the building from 30 years to 40 years, with no change in the estimated residual value. The building is depreciated on the straight-line method. Requireda. Prepare the journal entry to record depreciation expense for the equipment in 2020.b. Prepare the journal entry to record depreciation expense for the building in 2020. (Round to nearest peso.)arrow_forwardCullumber Corporation owns machinery that cost $26,400 when purchased on July 1, 2017. Depreciation has been recorded at a rate of $3,168 per year, resulting in a balance in accumulated depreciation of $11,088 at December 31, 2020. The machinery is sold on September 1, 2021, for $13,860. Prepare journal entries to (a) update depreciation for 2021 and (b) record the sale. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.) No. Account Titles and Explanation Debit Credit (a) (b)arrow_forward
- (Depreciation Computations—SYD, DDB—Partial Periods) Judds Company purchased a new plant asset on April 1, 2017, at a cost of $711,000. It was estimated to have a service life of 20 years and a salvage value of $60,000. Judds’ accounting period is the calendar year.Instructions(a) Compute the depreciation for this asset for 2017 and 2018 using the sum-of-the-years’-digits method.(b) Compute the depreciation for this asset for 2017 and 2018 using the double-declining-balance method.arrow_forwardNickle Company purchased three identical assets for $17,000 on January 2, 2016. Each asset has an expected residual value of $1,000. The depreciation expense for 2016 and 2017 is shown below for three assets:YearAsset AAsset BAsset C2016$ 4,000$ 6,400$6,37520174,0004,8003,984Required:-Which depreciation method is the company using in each example?arrow_forwardAt December 31, 2022, Dynamic Exploration's balance sheet showed total PPE assets of $802,000 and total accumulated depreciation of $339,980 as detailed in the PPE subledger below. Dynamic calculates depreciation to the nearest whole month. Required: Complete the schedule by calculating depreciation expense for 2023 for each asset and then determining the balance of accumulated depreciation at December 31, 2023. (Do not round intermediate calculations and round the final answers to nearest whole dollar.) Description Building Modular Furniture Truck Date of Purchase May 2, 2017 May 2, 2017 Jan. 25, 2020 Cost Information Depreciation Method1 S/L S/L DDB Cost2 $ 650,000 $ 72,000 80,000 Residual Life 250,000 10 yr. 06 yr. 10,000 8 yr. Balance of Accum. Deprec. Dec. 31, 2022 226,667 68,000 $ 45,313 Depreciation Depreciation Expense for 2023 $ Check my v 12,000 Balance of Accum. Deprec. Dec. 31, 2023arrow_forward
- Riverbed Cole Inc. acquired the following assets in January of 2018. Equipment, estimated service life, 5 years; salvage value, $14,300 $528,800 Building, estimated service life, 30 years; no salvage value $759,000 The equipment has been depreciated using the sum-of-the-years"-digits method for the first 3 years for financial reporting purposes. In 2021, the company decided to change the method of computing depreciation to the straight-line method for the equipment, but no change was made in the estimated service life or salvage value. It was also decided to change the total estimated service life of the building from 30 years to 40 years, with no change in the estimated salvage value. The building is depreciated on the straight- line method. (a) Prepare the general journal entry to record depreciation expense for the equipment in 2021. (b) Prepare the journal entry to record depreciation expense for the building in 2021. (Round answers to 0 decimal places, eg. 125. Credit account…arrow_forwardConcord Cole Inc. acquired the following assets in January of 2018. Equipment, estimated service life, 5 years; salvage value, $15,400 $519,400 Building, estimated service life, 30 years; no salvage value $735,000 The equipment has been depreciated using the sum-of-the-years’-digits method for the first 3 years for financial reporting purposes. In 2021, the company decided to change the method of computing depreciation to the straight-line method for the equipment, but no change was made in the estimated service life or salvage value. It was also decided to change the total estimated service life of the building from 30 years to 40 years, with no change in the estimated salvage value. The building is depreciated on the straight-line method. (a) Prepare the general journal entry to record depreciation expense for the equipment in 2021. (b) Prepare the journal entry to record depreciation expense for the building in 2021.arrow_forwardXYZ Company purchases a machine On January 1, 2014 for $100,000 with an estimated residual value of $10,000 and useful life of four years. Use the double-declining balance method.1. Prepare the journal entry to record depreciation for 2016.2. If possible, compute the net book value at the end of 2016.3. Determine the amount of depreciation expense in 2017.arrow_forward
- Intermediate Accounting: Reporting And AnalysisAccountingISBN:9781337788281Author:James M. Wahlen, Jefferson P. Jones, Donald PagachPublisher:Cengage Learning