On January 1, 2017 Baker purchased a new stamping machine for its plant. This new piece of equipment cost $120,000 and was recorded in Baker's accounting system with a $120,000 debit to the Equipment account and a $120,000 credit to the Cash account. Baker estimates that the stamping machine will last 5 years and will have no value at the end of t
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.
Question 1
On January 1, 2017 Baker purchased a new stamping machine for its plant. This new piece of equipment cost $120,000 and was recorded in Baker's accounting system with a $120,000 debit to the Equipment account and a $120,000 credit to the Cash account. Baker estimates that the stamping machine will last 5 years and will have no value at the end of those 5 years. At the end of January, February, March, April, and May, Baker made the correct
Select the June 30, 2017 adjusting entry Baker should make for June’s depreciation:
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If Baker did not make the above June 30 adjusting entry for depreciation:
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The errors on the Income Statement for June would be:
items understated: Depreciation Expense, Total Expenses
item overstated: Net Income
The errors on the June 30
Balance Sheet would be:item understated: Accumulated Depreciation
items overstated: Total Assets,
Retained Earnings , Total Equity, Total Liabilities and Equity -
The errors on the Income Statement for June would be:
item understated: Net Income
items overstated: Depreciation Expense, Total Expenses
The errors on the June 30 Balance Sheet would be:
items understated: Total Assets, Retained Earnings, Total Equity, Total Liabilities and Equity
item overstated: Accumulated Depreciation
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The errors on the Income Statement for June would be:
items understated: Depreciation Expense, Net Income
item overstated: Total Expenses
The errors on the June 30 Balance Sheet would be:
items understated: Accumulated Depreciation, Total Assets, Total Liabilities and Equity
items overstated: Retained Earnings, Total Equity
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a and b
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none of the above
PART1BBaker pays its employees each Friday for the work that they performed that week. On June 30, Baker owes its employees $3,400 for 3 days of work the employees performed after the last Friday payday in June. This $3,400 will be paid to the employees in July.
The current balance in the Wages Payable account is $0.
Select the adjusting entry Baker should make as of June 30, 2017 related to these 3 days of unpaid wages:
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Wages Payable 3,400
Wages Expense 3,400
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Wages Expense 3,400
Wages Payable 3,400
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Wages Expense 3,400
Cash 3,400
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No adjusting entry is required
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None of the above
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If Baker did not make the above June 30 adjusting entry for Wages owed to employees:
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The errors on the Income Statement for June would be:
items understated: Wages Expense, Total Expenses
item overstated: Net Income
The errors on the June 30 Balance Sheet would be:
items understated: Wages Payable, Total Liabilities
items overstated: Retained Earnings, Total Equity
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The errors on the Income Statement for June would be:
item understated: Net Income
items overstated: Wages Expense, Total Expenses
The errors on the June 30 Balance Sheet would be:
item understated: Cash
items overstated: Wages Payable, Total Liabilities
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The errors on the Income Statement for June would be:
items understated: none
items overstated: Wages Expense, Total Expenses, Net Income
The errors on the June 30 Balance Sheet would be:
items understated: Wages Payable, Total Liabilities
items overstated: Cash, Total Liabilities and Equity
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There would not be any errors, as no adjusting entry is required.
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