Lux Inc. recently purchased some production equipment that they would take possession as of February 1, 2021. The total purchase price for the equipment is $175,000 and they expect the residual value to be $25,000. The equipment is expected to have an estimated useful life of 5 years. Lux Inc. has a fiscal year end of December 31st. Required – a. What is the production equipment's depreciation expense for the year ending December 3, 2021, if they apply: i. straight-line method? ii) declining balance method for 2021 and 2022 assuming a 20% rate? b. On January 1, 2023, the company decided to make improvements to the production equipment and believe the total its estimated life will now be a total of 8 years and the residual value be $15,000. What is the depreciation expense for the year ending December 31, 2023, assuming the company uses the straight-line method? Assume that the 2021 and 2022 depreciation expenses were recorded correctly. c. On January 1, 2025 Lux Inc. sold the production equipment for $68,000. Prepare the journal entry to record the sale assuming the company uses the straight-line method and assuming the improvements from (b) are included.

Lux Inc. recently purchased some production equipment that they would take possession as of February 1, 2021. The total purchase price for the equipment is $175,000 and they expect the residual value to be $25,000. The equipment is expected to have an estimated useful life of 5 years. Lux Inc. has a fiscal year end of December 31st. Required – a. What is the production equipment's depreciation expense for the year ending December 3, 2021, if they apply: i. straight-line method? ii) declining balance method for 2021 and 2022 assuming a 20% rate? b. On January 1, 2023, the company decided to make improvements to the production equipment and believe the total its estimated life will now be a total of 8 years and the residual value be $15,000. What is the depreciation expense for the year ending December 31, 2023, assuming the company uses the straight-line method? Assume that the 2021 and 2022 depreciation expenses were recorded correctly. c. On January 1, 2025 Lux Inc. sold the production equipment for $68,000. Prepare the journal entry to record the sale assuming the company uses the straight-line method and assuming the improvements from (b) are included.

Name: Lux Inc. recently purchased some production equipment that they would
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Description: Lux Inc. recently purchased some production equipment that they would take possession as of February 1, 2021.The total purchase price for the equipment is $175,000 and they expect the residual value to be $25,000. Theequipment is expected to have an

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

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Concept explainers

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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Question

Lux Inc. recently purchased some production equipment that they would take possession as of February 1, 2021.
The total purchase price for the equipment is $175,000 and they expect the residual value to be $25,000. The
equipment is expected to have an estimated useful life of 5 years.
Lux Inc. has a fiscal year end of December 31st.
Required -
a. What is the production equipment's depreciation expense for the year ending December 3, 2021, if they
apply:
i. straight-line method?
ii) declining balance method for 2021 and 2022 assuming a 20% rate?
b. On January 1, 2023, the company decided to make improvements to the production equipment and believe
the total its estimated life will now be a total of 8 years and the residual value be $15,000. What is the
depreciation expense for the year ending December 31, 2023, assuming the company uses the straight-line
method? Assume that the 2021 and 2022 depreciation expenses were recorded correctly.
c. On January 1, 2025 Lux Inc. sold the production equipment for $68,000. Prepare the journal entry to record
the sale assuming the company uses the straight-line method and assuming the improvements from (b) are
included.

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