Jan. 1 Purchased office equipment, $113,000. Paid $80,000 cash and financed the remainder with a note payable. Apr. 1 Acquired land and communication equipment in a lump-sum purchase. Total cost was $310,000 paid in cash. An independent appraisal valued the land at $244,125 and the communication equipment at $81,375. Sep. 1 Sold a building that cost $520,000 (accumulated depreciation of $285,000 through December 31 of the preceding year). Ellie Johnson Associates received $420,000 cash from the sale of the building. Depreciation is computed on a straight-line basis. The building has a 40-year useful life and a residual value of $25,000. Dec. 31 Recorded depreciation as follows: Communication equipment is depreciated by the straight-line method over a five-year life with zero residual value. Office equipment is depreciated using the double-declining-balance method over five years with a $1,000 residual value.
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.
Recording lump-sum asset purchases,
Ellie Johnson Associates surveys American eating habits. The company’s accounts include Land, Buildings, Office Equipment, and Communication Equipment, with a separate
Record the transactions in the journal of Ellie Johnson Associates.
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