Assume that Carleton reported the following information regarding a machine at December 31, 2019: Cost $60,000 Accumulated depreciation to date 30,000 Expected future net cash flows 26,000 Fair value 24,000 Assuming that Carleton will continue to use this asset in the future and the machine has a remaining useful life of 4 years. Instructions a) Prepare the journal entry (if any) to record the impairment of the asset at December 31, 2019. Besides, prepare the journal entry to record depreciation expense for 2020. b) Assuming that Carleton intends to dispose the machine in the coming year. It is expected that the cost of disposal will be $1,000. However, the machine was not sold by December 31, 2020. The fair value of the machine on that date is $26,800. Prepare the journal entry (if any) necessary to record this increase in fair value. c) Assume that Carleton has a crane which has an original cost of $150,000, estimated salvage value of $ 25,000 and a useful life of 5 years. Carleton uses sum-of-the-year’s digit method to record depreciation for cranes. Now calculate depreciation for the crane for 2019, assuming that it was purchased on May 1, 2017.
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.
Assume that Carleton reported the following information regarding a machine at December 31, 2019:
Cost $60,000
Expected future net
Fair value 24,000
Assuming that Carleton will continue to use this asset in the future and the machine has a remaining useful life of 4 years.
Instructions
a) Prepare the
b) Assuming that Carleton intends to dispose the machine in the coming year. It is expected that the cost of disposal will be $1,000. However, the machine was not sold by December 31, 2020. The fair value of the machine on that date is $26,800. Prepare the journal entry (if any) necessary to record this increase in fair value.
c) Assume that Carleton has a crane which has an original cost of $150,000, estimated salvage value of $ 25,000 and a useful life of 5 years. Carleton uses sum-of-the-year’s digit method to record depreciation for cranes. Now calculate depreciation for the crane for 2019, assuming that it was purchased on May 1, 2017.
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