Concept explainers
1.
Prepare a schedule screening the
1.
Explanation of Solution
Depreciation expense: Depreciation expense is a non-cash expense, which is recorded on the income statement reflecting the consumption of economic benefits of long-term asset on account of its wear and tear or obsolesces.
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.
Prepare a schedule screening the depreciation expense, amortization expense, accumulated depreciation and amortization for each asset that would appear on the income statement and balance sheet of Company B for the year ended December 31, 2016 as follows:
Depreciation and amortization expense:
Company B | |
Depreciation and amortization expense | |
For the year ended December 31, 2016 | |
Particulars | $ |
Depreciation expense for building (1) | $56,214 |
Depreciation expense for equipment and machinery (6) | $103,775 |
Depreciation expense for automotive equipment (10) | $21,000 |
Amortization expense for leasehold improvements (11) | $16,800 |
Total depreciation and amortization expense for 2016 | $197,789 |
Table (1)
Accumulated depreciation and amortization:
Company B | ||
Accumulated depreciation and amortization | ||
December 31, 2016 | ||
Particulars | Amount | Amount |
Accumulated depreciation-Building: | ||
Balance, January 1, 2016 | $263,100 | |
Add: Depreciation expense for 2016 | $56,214 | |
Balance, December 31, 2016 | $319,314 | |
Accumulated depreciation-Machinery and equipment: | ||
Balance, January 1, 2016 | $250,000 | |
Add: Depreciation expense for 2016 | $103,775 | |
Sub-total | $353,775 | |
Less: Machine destroyed by fire (12) | $11,500 | |
Balance, December 31, 2016 | $342,275 | |
Accumulated depreciation-Automotive equipment: | ||
Balance, January 1, 2016 | $84,600 | |
Add: Depreciation expense for 2016 | $21,000 | |
Sub-total | $105,600 | |
Less: Sold car during the year (13) | $6,300 | |
Balance, December 31, 2016 | $99,300 | |
Accumulated amortization-Leasehold improvements: | ||
Amortization for 2016 | $16,800 | |
Total accumulated depreciation and amortization for 2016 | $777,689 |
Table (2)
Working note (1):
Compute the depreciation rate:
Useful life = 25 years
Working note (2):
Calculate the depreciation expense of building under 150%-declining balance method.
Working note (3):
Calculate the depreciation expense of remaining machinery under
Working note (4):
Calculate the depreciation expense for machine destroyed by fire under straight line method.
Working note (5):
Calculate the depreciation expense for new machinery under straight line method.
Working note (6):
Calculate the total depreciation expense for machinery for 2016.
Working note (7):
Calculate the denominator of the fraction for sum-of-the-year’s digit.
Working note (8):
Calculate the depreciation expense of sold car under the sum-of the year’s digit method.
Working note (9):
Calculate the depreciation expense of car under the sum-of the year’s digit method.
Working note (10):
Calculate the total depreciation expense of automotive equipment under the sum-of the year’s digit method.
Working note (11):
Calculate the amortization expense of leasehold improvements.
Working note (12):
Calculate the accumulated depreciation for machine destroyed by fire.
Working note (13):
Calculate the accumulated depreciation for sold car.
2.
Prepare a schedule screening the gain or loss from disposal of assets of Company B that would appear on the income statement for the year ended December 31, 2016.
2.
Explanation of Solution
Prepare a schedule screening the gain or loss from disposal of assets of Company B that would appear on the income statement for the year ended December 31, 2016 as follows:
Company B | ||
Gain or loss from disposal of assets | ||
For the year ended December 31, 2016 | ||
Particulars | Amount | Amount |
Gain on machinery destroyed by fire: | ||
Insurance recovery | $15,500 | |
Less: Book value of machine (12) | $11,500 | $4,000 |
Less: Loss on car traded in on new car purchase | ||
Book value of the traded car | $2,700 | |
Less: Trade in allowed | $2,000 | $700 |
Net gain on asset disposal for 2016 | $3,300 |
Table (3)
3.
Prepare the balance sheet of Company B and show the property, plant and equipment section as on December 31, 2016.
3.
Explanation of Solution
Prepare the balance sheet of Company B and show the property, plant and equipment section as on December 31, 2016 as follows:
Company B | |||
Balance sheet (partial) | |||
Property, plant and equipment section | |||
December 31, 2016 | |||
Particulars | Cost (A) |
Accumulated depreciation and amortization ( B) |
Book value |
Land | $150,000 | 0 | $150,000 |
Building | $1,200,000 | $319,214 | $880,686 |
Machinery and equipment | $1,187,000 (14) | $342,275 | $844,725 |
Automotive equipment |
$118,000 (15) | $99,300 | $18,700 |
Leasehold improvements | $168,000 | $16,800 | $151,200 |
Totals | $2,823,000 | $777,689 | $2,045,311 |
Table (4)
Working note (14):
Calculate the cost of machinery and equipment:
Particulars | Amount |
Machinery balance on January 1, 2016 | $900,000 |
Add: Machinery purchased during 2016 | $310,000 |
Sub total | $1,210,000 |
Less: Machine destroyed by fire | $23,000 |
Closing balance on December 31, 2016 | $1,187,000 |
Table (5)
Working note (15):
Calculate the cost of automotive equipment:
Particulars | Amount |
Automotive equipment balance on January 1, 2016 | $115,000 |
Add: Car purchased during 2016 | $12,000 |
Sub total | $127,000 |
Less: Car traded during 2016 | $9,000 |
Closing balance on December 31, 2016 | $118,000 |
Table (6)
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