Exercise 10-14 Ordinary repairs, extraordinary repairs, and betterments LO C3 Oki Company pays $306,500 for equipment expected to last four years and have a $30,000 salvage value. Prepare journal entries to record the following costs related to the equipment. Paid $26,000 cash for a new component that increased the equipment’s productivity. Paid $6,500 cash for minor repairs necessary to keep the equipment working well. Paid $18,950 cash for significant repairs to increase the useful life of the equipment from four to seven years.
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.
Exercise 10-14 Ordinary repairs, extraordinary repairs, and betterments LO C3
Oki Company pays $306,500 for equipment expected to last four years and have a $30,000 salvage value. Prepare
- Paid $26,000 cash for a new component that increased the equipment’s productivity.
- Paid $6,500 cash for minor repairs necessary to keep the equipment working well.
- Paid $18,950 cash for significant repairs to increase the useful life of the equipment from four to seven years.
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