Waterway Company is in the process of preparing its financial statements for 2020. Assume that no entries for depreciation have been recorded in 2020. The following information related to depreciation of fixed assets is provided to you. 1 2 Waterway purchased equipment on January 2, 2017, for $90.700. At that time, the equipment had an estimated useful life of 10 years with a $4,700 salvage value. The equipment is depreciated on a straight-line basis. On January 2, 2020, as a result of additional information, the company determined that the equipment has a remaining useful life of 4 years with a $3.100 salvage value. 3. During 2020, Waterway changed from the double-declining-balance method for its building to the straight-line method. The building originally cost $320,000. It had a useful life of 10 years and a salvage value of $32,000. The following computations present depreciation on both bases for 2018 and 2019. 2019 Straight-line Declining-balance 51,200 2018 $28,800 $28,800 64,000 Waterway purchased a machine on July 1, 2018, at a cost of $120,000. The machine has a salvage value of $20,000 and a useful life of 8 years. Waterway's bookkeeper recorded straight-line depreciation in 2018 and 2019 but failed to consider the salvage value.
Waterway Company is in the process of preparing its financial statements for 2020. Assume that no entries for depreciation have been recorded in 2020. The following information related to depreciation of fixed assets is provided to you. 1 2 Waterway purchased equipment on January 2, 2017, for $90.700. At that time, the equipment had an estimated useful life of 10 years with a $4,700 salvage value. The equipment is depreciated on a straight-line basis. On January 2, 2020, as a result of additional information, the company determined that the equipment has a remaining useful life of 4 years with a $3.100 salvage value. 3. During 2020, Waterway changed from the double-declining-balance method for its building to the straight-line method. The building originally cost $320,000. It had a useful life of 10 years and a salvage value of $32,000. The following computations present depreciation on both bases for 2018 and 2019. 2019 Straight-line Declining-balance 51,200 2018 $28,800 $28,800 64,000 Waterway purchased a machine on July 1, 2018, at a cost of $120,000. The machine has a salvage value of $20,000 and a useful life of 8 years. Waterway's bookkeeper recorded straight-line depreciation in 2018 and 2019 but failed to consider the salvage value.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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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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Transcribed Image Text:Waterway Company is in the process of preparing its financial statements for 2020. Assume that no entries for depreciation have
been recorded in 2020. The following information related to depreciation of fixed assets is provided to you.
1 Waterway purchased equipment on January 2, 2017, for $90.700. At that time, the equipment had an estimated useful life of
10 years with a $4,700 salvage value. The equipment is depreciated on a straight-line basis. On January 2, 2020, as a result of
additional information, the company determined that the equipment has a remaining useful life of 4 years with a $3.100
salvage value.
2
Straight-line
During 2020, Waterway changed from the double-declining-balance method for its building to the straight-line method. The
building originally cost $320,000. It had a useful life of 10 years and a salvage value of $32,000. The following computations
present depreciation on both bases for 2018 and 2019.
3.
Declining-balance 51,200
(a)
2019
2018
$28,800 $28,800
64,000
Waterway purchased a machine on July 1, 2018, at a cost of $120,000. The machine has a salvage value of $20,000 and a
useful life of 8 years. Waterway's bookkeeper recorded straight-line depreciation in 2018 and 2019 but failed to consider the
salvage value.
Your Answer Correct Answer
1
2
Your answer is partially correct.
Prepare the journal entries to record depreciation expense for 2020 and correct any errors made to date related to the
information provided. (Ignore taxes) (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 O for the amounts)
No. Account Titles and Explanation
Depreciation Expense
Accumulated Depreciation Equipment
Depreciation Expense
Debit
"
15450
Credit
15450
Transcribed Image Text:(b)
2018
2019
Depreciation
taken
$7,500
15,000
List of Accounts
$22,500
Net income
Depreciation expense
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Depreciation that
should be taken
List of Accounts
$6,250
Income before depreciation expense $
12.500
$18,750
Show comparative net income for 2019 and 2020. Income before depreciation expense was $330,000 in 2020, and was
$340,000 in 2019. (Ignore taxes)
Differences
$
$1,250
WATERWAY COMPANY
Comparative Income Statements
For the Years 2020 and 2019
2,500
$3,750
2020
A
$
Attempts: 3 of 3 used
2019
Attempts: 0 of 3 used
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