On April 1, 2016, the KB Toy Company purchased equipment to be used in its manufacturing process. Theequipment cost $48,000, has an eight-year useful life, and has no residual value. The company uses the straightline depreciation method for all manufacturing equipment.On January 4, 2018, $12,350 was spent to repair the equipment and to add a feature that increased its operating efficiency. Of the total expenditure, $2,000 represented ordinary repairs and annual maintenance and$10,350 represented the cost of the new feature. In addition to increasing operating efficiency, the total usefullife of the equipment was extended to 10 years.Required:Prepare journal entries for the following:1. Depreciation for 2016 and 20172. The 2018 expenditure3. Depreciation for 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.
On April 1, 2016, the KB Toy Company purchased equipment to be used in its manufacturing process. The
equipment cost $48,000, has an eight-year useful life, and has no residual value. The company uses the straightline
On January 4, 2018, $12,350 was spent to repair the equipment and to add a feature that increased its operating efficiency. Of the total expenditure, $2,000 represented ordinary repairs and annual maintenance and
$10,350 represented the cost of the new feature. In addition to increasing operating efficiency, the total useful
life of the equipment was extended to 10 years.
Required:
Prepare
1. Depreciation for 2016 and 2017
2. The 2018 expenditure
3. Depreciation for 2018
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