On January 1, 2019, Wolfe-Bache Corporation paid for and expensed a 3-year insurance policy for $1,800. 2. Wardell Company purchased a mini computer on January 1, 2018, at a cost of $40,000. The computer has been depreciated using the straight-line method over an estimated five-year useful life with an estimated residual value of $4,000. On January 1, 2020, the estimate of useful life was changed to a total of 10 years, and the estimate of residual value was changed to $900. 3. The Commonwealth of Virginia filed suit in October 2019, against Northern Timber Corporation seeking civil penalties and injunctive relief for violations of environmental laws regulating forest conservation. When the financial statements were issued in 2019, Northern had not reached a settlement with state authorities, but legal counsel advised Northern Timber that it was probable the ultimate settlement would be $1,000,000 in penalties. At that time the amount was recorded in the financial statements. In 2020 a settlement was reached for a total of $600,000 and Northern Timber paid the amount in full. Record the necessary journal entries related to each item stated above. Assume only 2020 financial statements are presented.
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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On January 1, 2019, Wolfe-Bache Corporation paid for and expensed a 3-year insurance policy for $1,800. |
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2. |
Wardell Company purchased a mini computer on January 1, 2018, at a cost of $40,000. The computer has been |
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3. |
The Commonwealth of Virginia filed suit in October 2019, against Northern Timber Corporation seeking civil penalties and injunctive relief for violations of environmental laws regulating forest conservation. When the financial statements were issued in 2019, Northern had not reached a settlement with state authorities, but legal counsel advised Northern Timber that it was probable the ultimate settlement would be $1,000,000 in penalties. At that time the amount was recorded in the financial statements. In 2020 a settlement was reached for a total of $600,000 and Northern Timber paid the amount in full. |
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