How much depreciation did Toner report on its income statement related to this equipment in Year 1? What is the correct amount of depreciation to report in Year 1? Income is $100,000 before costs related to the equipment reported. How much income will Toner report in year 1? What amount of income should it report? You can ignore income tax. Using the equipment as an example, explain the difference between a cost and an expense.
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.
Problem 8-7: Early in its first year of business, Toner Company, a fitness and training center, purchased new workout equipment. The acquisition included the following costs:
Purchase price $150,000
Tax 15,000
Transportation 4,000
Setup 25,000
Painting 3,000
The bookkeeper recorded an asset, Equipment, $165,000. The remaining costs were expensed for the year. Toner used straight-line
- How much depreciation did Toner report on its income statement related to this equipment in Year 1? What is the correct amount of depreciation to report in Year 1?
- Income is $100,000 before costs related to the equipment reported. How much income will Toner report in year 1? What amount of income should it report? You can ignore income tax.
- Using the equipment as an example, explain the difference between a cost and an expense.
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