During 2024, Novak constructed a small manufacturing facility specifically to manufacture one particular accessory. Novak paid the construction contractor $4,851,000 cash (which was the total contract price) and placed the facility into service on January 1, 2025. Because of technological change, Novak anticipates that the manufacturing facility will be useful for no more than 10 years. The local government where the facility is located required that, at the end of the 10-year period, Novak remediate the facility so that it can be used as a community center. Novak estimates the cost of remediation will be $402,100. Novak uses straight-line depreciation with $0 salvage value for its plant asset and a 9% discount rate for asset retirement obligations. Prepare adjusting entries to record depreciation and accretion expense on December 31, 2025. (Credit account titles are automatically indented when the 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. List all debit entries before credit entries. Round answers to O decimal places, e.g. 5,125.) Account Titles and Explanation (To record depreciation) (To record interest) Debit Credit
During 2024, Novak constructed a small manufacturing facility specifically to manufacture one particular accessory. Novak paid the construction contractor $4,851,000 cash (which was the total contract price) and placed the facility into service on January 1, 2025. Because of technological change, Novak anticipates that the manufacturing facility will be useful for no more than 10 years. The local government where the facility is located required that, at the end of the 10-year period, Novak remediate the facility so that it can be used as a community center. Novak estimates the cost of remediation will be $402,100. Novak uses straight-line depreciation with $0 salvage value for its plant asset and a 9% discount rate for asset retirement obligations. Prepare adjusting entries to record depreciation and accretion expense on December 31, 2025. (Credit account titles are automatically indented when the 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. List all debit entries before credit entries. Round answers to O decimal places, e.g. 5,125.) Account Titles and Explanation (To record depreciation) (To record interest) Debit Credit
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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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:During 2024, Novak constructed a small manufacturing facility specifically to manufacture one particular accessory. Novak paid the
construction contractor $4,851,000 cash (which was the total contract price) and placed the facility into service on January 1, 2025.
Because of technological change, Novak anticipates that the manufacturing facility will be useful for no more than 10 years. The local
government where the facility is located required that, at the end of the 10-year period, Novak remediate the facility so that it can be
used as a community center. Novak estimates the cost of remediation will be $402,100.
Novak uses straight-line depreciation with $0 salvage value for its plant asset and a 9% discount rate for asset retirement obligations.
Prepare adjusting entries to record depreciation and accretion expense on December 31, 2025. (Credit account titles are
automatically indented when the 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. List all debit entries before credit entries. Round answers to O decimal places, e.g. 5,125.)
Account Titles and Explanation
(To record depreciation)
(To record interest)
Debit
Credit
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