Concept explainers
Straight-line
• LO11–2, LO11–5
The property, plant, and equipment section of the Jasper Company’s December 31, 2017, balance sheet contained the following:
Property, plant, and equipment: | ||
Land | $120,000 | |
Building | $ 840,000 | |
Less: |
(200,000) | 640,000 |
Equipment | 180,000 | |
Less: Accumulated depreciation | ? | ? |
Total property, plant, and equipment | ? |
The land and building were purchased at the beginning of 2013. Straight-line depreciation is used and a residual value of $40,000 for the building is anticipated.
The equipment is comprised of the following three machines:
The straight-line method is used to determine depreciation on the equipment. On March 31, 2018, Machine 102 was sold for $52,500. Early in 2018, the useful life of machine 101 was revised to seven years in total, and the residual value was revised to zero.
Required:
1. Calculate the accumulated depreciation on the equipment at December 31, 2017.
2. Prepare the
3. Prepare a schedule to calculate the gain or loss on the sale of machine 102.
4. Prepare the journal entry for the sale of machine 102.
5. Prepare the 2018 year-end journal entries to record depreciation on the building and equipment.
(1)
Depreciation:
The decrease in the value of fixed tangible assets due to its use is known as depreciation. It is the allocation of the cost of tangible fixed assets over the useful life of the asset.
To calculate: The accumulated depreciation on the equipment at December 31, 2017.
Explanation of Solution
Company J using straight line method of depreciation:
Straight-line method: It is a method of providing depreciation. In this method, depreciation is calculated as the fixed percentage of the original cost of the fixed asset. The amount of depreciation in this method remains same for all the years of the useful life of the asset. Therefore, the following formula is used to calculate depreciation of asset.
To calculate: The accumulated depreciation on the equipment at December 31, 2017.
Asset | Cost at 2016 ($) |
Estimated residual value | Estimated life of the asset | Number of years used |
Accumulated depreciation ($) |
(1) | (2) | (2a) |
(3) | (4) | (5) =
|
101 | 70 | 7000 | 10years | 36 | 18,900 |
102 | 80 | 8000 | 8 years | 18 | 13,500 |
103 | 30 | 3000 | 9 years | 4 | 1,000 |
Accumulated depreciation on 31, December 2017 | 33,400 |
Table (1)
(2)
To prepare: The journal entry to record the depreciation machine 102 up to the date of sale.
Explanation of Solution
Prepare a journal entry to record the depreciation on equipment 102.
Accounts title and explanation | Post Ref. | Debit ($) |
Credit ($) |
Depreciation expense (1) | 2,250 | ||
Accumulated Depreciation | 2,250 | ||
(To record the depreciation on equipment 102.) |
Table (2)
Working note:
(1) Calculate the depreciation on equipment 102 up to the date of sale.
Therefore depreciation up to the date of sale is $2,250.
(3)
To prepare: A schedule to calculate the gain or loss on the sale of machine 102.
Explanation of Solution
Prepare a schedule to calculate the gain or loss on sale of machine 102.
Particulars | Amount ($) | Amount ($) | Amount ($) |
Sales proceeds | 52,500 | ||
Less: Book value on 31/03/18 | |||
Cost | 80,000 | ||
Accumulated depreciation | (15,750) | 64,250 | |
Loss on sale of equipment 102 | 11,750 |
Table (2)
Calculate the accumulated depreciation
Particulars | Amount $ |
Depreciation through 31/12/17 | 13,500 |
Depreciation from 1/1/18 to 31/3/18 | 2,250 |
Accumulated depreciation | 15,750 |
Table (3)
(4)
To prepare: The journal entry for the sale of machine 102.
Explanation of Solution
Prepare the journal entry for the sale of machine 102.
Date | Account Title and Explanation | Post Ref. |
Debit ($) |
Credit ($) |
31/03/2018 | Cash | 52,500 | ||
Accumulated depreciation | 15,750 | |||
Loss on sale of the equipment 102 | 11,750 | |||
Equipment 102 | 80,000 | |||
(To record the sale of equipment 102.) |
Table (4)
- Cash is a current asset and increased due to sale of equipment 102. Thus, debit Cash account with $52,500.
- Accumulated depreciation is a contra asset. It increases the value of asset account. Thus, debit Accumulated Depreciation with $15,750.
- Loss on sale of equipment 102 decreases the value of shareholders equity. Thus, debit Loss on sale of equipment 102 with $11,750.
- Equipment 102 is an asset and decreases value of the assets due to sale. Thus, credit Equipment 102 with $80,000.
(5)
To prepare: The 2018 year-end journal entries to record depreciation on the building and equipment.
Explanation of Solution
Prepare a journal entry to record the depreciation on building.
Date | Accounts title and explanation | Post Ref. | Debit ($) |
Credit ($) |
31/12/2018 | Depreciation expense (1) | 40,000 | ||
Accumulated Depreciation – Building | 40,000 | |||
(To record the depreciation.) |
Table (5)
- Depreciation is an expense which decreases shareholders equity. Thus, debit Depreciation expense account with $40,000.
- Accumulated depreciation is a contra asset. It decreases the value of asset. Thus, credit accumulated depreciation with $40,000.
Working notes:
Determine the depreciation per year.
The land and building were purchased at the beginning of 2013. Straight-line depreciation is used and a residual value of $40,000 for the building is anticipated.
Therefore annual depreciation on building is $40,000.
Prepare a journal entry to record the depreciation on equipment.
Date | Accounts title and explanation | Post Ref. | Debit ($) |
Credit ($) |
Depreciation expense (2) | 15,775 | |||
Accumulated Depreciation | 15,775 | |||
(To record the depreciation.) |
Table (6)
- Depreciation expense which decreases shareholders equity. Thus, debit Depreciation expense with $15,775.
- Accumulated depreciation is a contra asset. It decreases the value of asset. Thus, credit accumulated depreciation with $15,775.
Working note:
Compute the deprecation on equipments.
Particulars | Amount ($) |
Amount ($) |
Equipment 101 | ||
Cost | 70,000 | |
Less: Accumulated depreciation | 18,900 | |
Book value, 12/31/17 | 51,100 | |
Revised remaining life (7 years – 3 years) | 12,775 | |
Equipment 103 (requirement 1) | 3,000 | |
Depreciation | 15,7775 |
Table (7)
Therefore depreciation on equipment’s is $15,775.
Want to see more full solutions like this?
Chapter 11 Solutions
Loose Leaf Intermediate Accounting
- Problem 10-3 (Algo) Acquisition costs [LO10-1, 10-4, 10-6] The plant asset and accumulated depreciation accounts of Pell Corporation had the following balances at December 31, 2020: Accumulated Depreciation $ Land Land improvements Building Equipment Automobiles Plant Asset $ 480,000 245,000 2,150,000 1,184,000 215,000 Transactions during 2021 were as follows: a. On January 2, 2021, equipment were purchased at a total invoice cost of $325,000, which included a $6,800 charge for freight. Installation costs of $40,000 were incurred. b. On March 31, 2021, a small storage building was donated to the company. The person donating the building originally purchased it three years ago for $32,000. The fair value of the building on the day of the donation was $21,000. c. On May 1, 2021, expenditures of $63,000 were made to repave parking lots at Pell's plant location. The work was necessitated by damage caused by severe winter weather. The repair doesn't provide future benefits beyond those…arrow_forwardProblem 11-11 (Algo) Error correction; change in depreciation method [LO11-2, 11-6, 11-7] Collins Corporation purchased office equipment at the beginning of 2022 and capitalized a cost of $2,130,000. This cost figure included the following expenditures: Purchase price Freight charges Installation charges Annual maintenance charge Total The company estimated an eight-year useful life for the equipment. No residual value is anticipated. The double-declining-balance method was used to determine depreciation expense for 2022 and 2023. In 2024, after the 2023 financial statements were issued, the company decided to switch to the straight-line depreciation method for this equipment. At that time, the company's controller discovered that the original cost of the equipment incorrectly included one year of annual maintenance charges for the equipment. Required: 1. Ignoring income taxes, prepare the appropriate correcting entry for the equipment capitalization error discovered in 2024. 2.…arrow_forward! Required information Exercise 11-2 (Algo) Depreciation methods [LO11-2] [The following information applies to the questions displayed below.] On January 1, 2024, the Allegheny Corporation purchased equipment for $134,000. The estimated service life of the equipment is 10 years and the estimated residual value is $2,000. The equipment is expected to produce 240,000 units during its life. Required: Calculate depreciation for 2024 and 2025 using each of the following methods. Exercise 11-2 (Algo) Part 1 1. Straight-line. Formula Amounts 2024 2025 Choose Numerator: Annual Depreciation Straight-Line Depreciation + Choose Denominator: = II = = Annual Depreciation Annual Depreciationarrow_forward
- Exercises Required information Exercise 11-4 (Algo) Other depreciation methods [LO11-2] [The following information applies to the questions displayed below.] On January 1, 2021, the Allegheny Corporation purchased equipment for $343,000. The estimated service life of the equipment is 10 years and the estimated residual value is $24,000. The equipment is expected to produce 296,000 units during its life. Required: Calculate depreciation for 2021 and 2022 using each of the following methods. Exercise 11-4 (Algo) Part 3 3. Assume instead the equipment was purchased on October 1, 2021. Calculate depreciation for 2021 and 2022 using each of the two methods. Partial-year depreciation is calculated based on the number of months the asset is in service. (Do not round intermediate answers and round your answers to the nearest whole dollar amount.) Sum-of-the-years' digits One hundred fifty percent declining balance $ 2021 12,863 2022arrow_forwardExercise 11-11 (Algo) Disposal of property, plant, and equipment; partial periods (LO11-2] On July 1, 2016, Farm Fresh Industries purchased a specialized delivery truck for $219,000. At the time, Farm Fresh estimated the truck to have a useful life of eight years and a residual value of $27,000. On March 1, 2021, the truck was sold for $88,000. Farm Fresh uses the straight-line depreciation method for all of its plant and equipment. Partial-year depreciation is calculated based on the number of months the asset is in service. Required: 1. Prepare the journal entry to update depreciation in 2021. 2. Prepare the journal entry to record the sale of the truck. 3. Assuming that the truck was instead sold for $125,000, prepare the journal entry to record the sale. X Answer is not complete. Complete this question by entering your answers in the tabs below. Reg 1 and 2 Reg 3 Prepare the journal entries to update depreciation in 2021 and record the sale of the truck. (If no entry is required…arrow_forwardExercise 11-9 (Static) IFRS; revaluation of equipment; depreciation; partial periods [LO11-10] [The following information applies to the questions displayed below.] Exercise 11-9 (Static) Part 1 Dower Corporation prepares its financial statements according to IFRS. On March 31, 2024, the company purchased equipment for $240,000. The equipment is expected to have a six-year useful life with no residual value. Dower uses the straight-line depreciation method for all equipment. On December 31, 2024, the end of the company's fiscal year, Dower chooses to revalue the equipment to its fair value of $220,000. Required: 1. Calculate depreciation for 2024. 2-a. Calculate the revaluation of the equipment. 2-b. Prepare the journal entry to record the revaluation of the equipment. 3. Calculate depreciation for 2025. Complete this question by entering your answers in the tabs below. No 1 Req 1 Reg 2A Req 2B Prepare the journal entry to record the revaluation of the equipment. Note: If no entry is…arrow_forward
- Required information Exercise 11-1 (Algo) Depreciation methods [LO11-2] [The following information applies to the questions displayed below.] On January 1, 2024, the Excel Delivery Company purchased a delivery van for $35,850. At the end of its five-year service life, it is estimated that the van will be worth $3,000. During the five-year period, the company expects to drive the van 109,500 miles. Required: Calculate annual depreciation for the five-year life of the van using each of the following methods. Exercise 11-1 (Algo) Part 3 3. Units of production using miles driven as a measure of output, and the following actual mileage: Note: Do not round intermediate calculations. Round your final answers to the nearest whole dollar amount. Depreciation Year Miles 2024 23,900 $ 2025 25,900 2026 16,900 2027 29,500 7,170 7,770 5,070 8,850 2028 15,300 Total $ 28,860arrow_forwardExercise 11-24 (Algo) Change in principle; change in depreciation methods [LO11-2, 11-6] Alteran Corporation purchased office equipment for $2.2 million at the beginning of 2022. The equipment is being depreciated over a 10-year life using the double-declining-balance method. The residual value is expected to be $700,000. At the beginning of 2024 (two years later), Alteran decided to change to the straight-line depreciation method for this equipment. Required: Prepare the journal entry to record depreciation for the year ended December 31, 2024. Note: If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Do not round intermediate calculations. Enter your answers in whole dollars. View transaction list View journal entry worksheet Event 1 No 1 General Journal Depreciation expense Accumulated depreciation Debit Credit Tecnalarrow_forwardProblem 10-3 (Algo) Acquisition costs [LO10-1, 10-4, 10-6] The plant asset and accumulated depreciation accounts of Pell Corporation had the following balances at December 31, 2020: Accumulated Plant Asset 540,000 275,000 2,450,000 1,196,000 245,000 Depreciation $ 64,000 369,000 424,000 131,000 Land $ Land improvements Building Equipment Automobiles Transactions during 2021 were as follows: a. On January 2, 2021, equipment were purchased at a total invoice cost of $355,000, which included a $7,400 charge for freight. Installation costs of $46,000 were incurred. b. On March 31, 2021, a small storage building was donated to the company. The person donating the building originally purchased it three years ago for $38,000. The fair value of the building on the day of the donation was $24,000. c. On May 1, 2021, expenditures of $69,000 were made to repave parking lots at Pell's plant location. The work was necessitated by damage caused by severe winter weather. The repair doesn't provide…arrow_forward
- Exercise 11-11 (Algo) Disposal of property, plant, and equipment; partial periods [LO11-2] On July 1, 2016, Farm Fresh Industries purchased a specialized delivery truck for $131,600. At the time, Farm Fresh estimated the truck to have a useful life of eight years and a residual value of $26,000. On March 1, 2021, the truck was sold for $52,000. Farm Fresh uses the straight-line depreciation method for all of its plant and equipment. Partial-year depreciation is calculated based on the number of months the asset is in service. Required: 1. Prepare the journal entry to update depreciation in 2021. 2. Prepare the journal entry to record the sale of the truck. 3. Assuming that the truck was instead sold for $83,000, prepare the journal entry to record the sale. Complete this question by entering your answers in the tabs below. Req 1 and 2 Prepare the journal entries to update depreciation in 2021 and record the sale of the truck. (If no entry is required for a transaction/event, select "No…arrow_forwardCurrent Attempt in Progress X Your answer is incorrect. Metlock Company purchased equipment for $285,600 on October 1, 2025. It is estimated that the equipment will have a useful life of 8 years and a salvage value of $12,000. Estimated production is 48,000 units and estimated working hours are 19,000. During 2025, Metlock uses the equipment for 530 hours and the equipment produces 1,100 units. Compute depreciation expense under each of the following methods. Metlock is on a calendar-year basis ending December 31. (Round rate per hour and rate per unit to 2 decimal places, e.g. 5.35 and final answers to O decimal places, e.g. 45,892.) (a) (b) (c) Straight-line method for 2025 (e) Activity method (units of output) for 2025 Activity method (working hours) for 2025 (d) Sum-of-the-years'-digits method for 2027 Double-declining-balance method for 2026 $ ta tA LA 8531 5.69 7615 51187 66797arrow_forwardExercise 11-3 (Aigo) Depreciation methods; partial periods [LUT1-2] The following information applies to the questions displayed below.] On October 1, 2024, the Allegheny Corporation purchased equipment for $233,000. The estimated service life of the equipment is 10 years and the estimated residual value is $2,000. The equipment is expected to produce 420,000 units during its life. Required: Calculate depreciation for 2024 and 2025 using each of the following methods. Partial-year depreciation is calculated based on the number of months the asset is in service. Exercise 11-3 (Algo) Part 2 2. Double-declining-balance. Depreciation Expense = $ 11,650 Formula Beginning Book Value Double-Declining-Balance Method xDouble the Straight-line Rate X Fraction of Year = Amount for 2024 $ 233,000 x 20 % x 3/12 Amount for 2025 X 20 % * 12/12 =arrow_forward
- AccountingAccountingISBN:9781337272094Author:WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.Publisher:Cengage Learning,Accounting Information SystemsAccountingISBN:9781337619202Author:Hall, James A.Publisher:Cengage Learning,
- Horngren's Cost Accounting: A Managerial Emphasis...AccountingISBN:9780134475585Author:Srikant M. Datar, Madhav V. RajanPublisher:PEARSONIntermediate AccountingAccountingISBN:9781259722660Author:J. David Spiceland, Mark W. Nelson, Wayne M ThomasPublisher:McGraw-Hill EducationFinancial and Managerial AccountingAccountingISBN:9781259726705Author:John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting PrinciplesPublisher:McGraw-Hill Education