Falcetto Company acquired equipment on January 1, 2016, for $12,000. Falcetto elects to value this class of equipment using revaluation accounting. This equipment is being depreciated on a straight-line basis over its 6-year useful life. There is no residual value at the end of the 6-year period. The appraised value of the equipment approximates the carrying amount at December 31, 2016 and 2018. On December 31, 2017, the fair value of the equipment is determined to be $7,000.Instructions(a) Prepare the journal entries for 2016 related to the equipment.(b) Prepare the journal entries for 2017 related to the equipment.(c) Determine the amount of depreciation expense that Falcetto will record on the equipment in 2018.
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.
Falcetto Company acquired equipment on January 1, 2016, for $12,000. Falcetto elects to value this class of equipment using revaluation accounting. This equipment is being depreciated on a straight-line basis over its 6-year useful life. There is no residual value at the end of the 6-year period. The appraised value of the equipment approximates the carrying amount at December 31, 2016 and 2018. On December 31, 2017, the fair value of the equipment is determined to be $7,000.
Instructions
(a) Prepare the
(b) Prepare the journal entries for 2017 related to the equipment.
(c) Determine the amount of depreciation expense that Falcetto will record on the equipment in 2018.
Trending now
This is a popular solution!
Step by step
Solved in 3 steps with 3 images
