On March 1, 2022, Newt’s All Things Weasels purchased an automatic weasel groomer, the Weaselmatic, for $62,000 cash. Newt estimated that the machine would have a useful life of 5 years and a resale or residual value of $2,000. Instructions: Make two T accounts (Machine and Accumulated Depreciation – Machine) at the top. Create the journal entry for the acquisition of the machine. Post to the T accounts Create the journal entry to record depreciation expense on 12/31/22 and 12/31/23. Post both to the T accounts. NOTE: Show your calculations for depreciation expense. What is the book value of the Weaselmatic at 12/31/23? Show your calculation. If Newt sold the Weaselmatic on January 1, 2024 for $42,500, how much gain or loss would he record?
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.
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On March 1, 2022, Newt’s All Things Weasels purchased an automatic weasel groomer, the Weaselmatic, for $62,000 cash. Newt estimated that the machine would have a useful life of 5 years and a resale or residual value of $2,000.
Instructions:
- Make two T accounts (Machine and
Accumulated Depreciation – Machine) at the top. - Create the
journal entry for the acquisition of the machine. Post to the T accounts - Create the journal entry to record depreciation expense on 12/31/22 and 12/31/23. Post both to the T accounts. NOTE: Show your calculations for depreciation expense.
- What is the book value of the Weaselmatic at 12/31/23? Show your calculation.
- If Newt sold the Weaselmatic on January 1, 2024 for $42,500, how much gain or loss would he record?
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