In an examination of Arenes Corporation as of December 31, 2020, you have learned that the following situations exist. No entries have been made in the accounting records for these items. 1. The corporation erected its present factory building in 2004. Depreciation was calculated by the straight-line method, using an estimated life of 35 years. Early in 2020, the board of directors conducted a careful survey and estimated that the factory building had a remaining useful life of 25 years as of January 1, 2020. 2. An additional assessment of 2019 income taxes was levied and paid in 2020. 3. When calculating the accrual for officers’ salaries at December 31, 2020, it was discovered that the accrual for officers’ salaries for December 31, 2019, had been overstated. 4. On December 15, 2020, Arenes Corporation declared a cash dividend on its common stock outstanding, payable February 1, 2021, to the common stockholders of record December 31, 2020. Instructions Describe fully how each of the items above should be reported in the financial statements of Arenes Corporation for the year 2020.
Depreciation Methods
The word "depreciation" is defined as an accounting method wherein the cost of tangible assets is spread over its useful life and it usually denotes how much of the assets value has been used up. The depreciation is usually considered as an operating expense. The main reason behind depreciation includes wear and tear of the assets, obsolescence etc.
Depreciation Accounting
In terms of accounting, with the passage of time the value of a fixed asset (like machinery, plants, furniture etc.) goes down over a specific period of time is known as depreciation. Now, the question comes in your mind, why the value of the fixed asset reduces over time.
In an examination of Arenes Corporation as of December 31, 2020, you have learned that the following situations exist. No entries have been made in the accounting records for these items.
1. The corporation erected its present factory building in 2004.
2. An additional assessment of 2019 income taxes was levied and paid in 2020.
3. When calculating the accrual for officers’ salaries at December 31, 2020, it was discovered that the accrual for officers’ salaries for December 31, 2019, had been overstated.
4. On December 15, 2020, Arenes Corporation declared a cash dividend on its common stock outstanding, payable February 1, 2021, to the common stockholders of record December 31, 2020.
Instructions
Describe fully how each of the items above should be reported in the financial statements of Arenes Corporation for the year 2020.
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