Rifhan products use straight-line depreciation on all its depreciable assets. The accounts are adjusted and closed at the end of each calendar year. On January 4, 1999, the corporation purchased machinery for cash at a cost of $90,000. Its useful life was estimated to be 10 years with a residual value of $22,000. Depreciation for partial years is recorded to the nearest full month. In 2001, after almost 2 years of experience with the equipment, management decided that the estimated life of the equipment should be revised from 10 years to 7 years. No change was made in the estimate of residual value. The revised estimate of useful life was decided on prior to recording to depreciation for the period ended December 31, 2001. Instructions: Prepare journal entries in chronological order for the above events, beginning with the purchase of the machinery on January 4, 1999. Show separately the depreciation for 1999, 2000, and 2001 and 2002. (B) During the current year, Matrix Homes disposed of plant assets in the following transactions: February 10 Office equipment costing $16,000 was given to a scrap dealer. No proceeds were received from the scrap dealer. At the date of disposal, accumulated depreciation on the office equipment amounted to $14,800. April 1 Matrix sold land and a building to Shalimar Group for $725,000, receiving $225,000 in cash and a 5-year, 11% note receivable for $500,000. Matrix accounting records showed the following amounts: Land $110,000, Building $360,000, Accumulated depreciation Building (as of April 1), $112,000. August 15 Matrix traded in an old Car for a new one. The old Car had cost $12,000 and accumulated depreciation amounted to $8,000. The list price of the new Car was $18,000. Matrix received a $4,500 trade-in-allowance for the old Car and paid the $11,000 balance in cash. Matrix traded in its old laptop as part of the purchase of a new system. The old laptop had cost $155,000 and, as of October 1, accumulated depreciation amounted to $115,000. The new laptop had a list price of $85,000. Matrix was granted a $12,000 trade-in allowance for the old laptop, paid $28,000 in cash, and issued a $52,000 2-year, 8% note payable to Action computers for the balance. Instructions: Prepare journal entries to record each of these transactions. Assume that depreciation expense on each asset already has been recorded up to the date of disposal. Thus you need not update the accumulated depreciation figures stated in the problem.
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.
(A)
Rifhan products use straight-line
In 2001, after almost 2 years of experience with the equipment, management decided that the estimated life of the equipment should be revised from 10 years to 7 years. No change was made in the estimate of residual value. The revised estimate of useful life was decided on prior to recording to depreciation for the period ended December 31, 2001.
Instructions:
Prepare
(B)
During the current year, Matrix Homes disposed of plant assets in the following transactions:
February 10 Office equipment costing $16,000 was given to a scrap dealer. No proceeds were received from the scrap dealer. At the date of disposal,
April 1 Matrix sold land and a building to Shalimar Group for $725,000, receiving $225,000 in cash and a 5-year, 11% note receivable for $500,000. Matrix accounting records showed the following amounts: Land $110,000, Building $360,000, Accumulated depreciation Building (as of April 1), $112,000.
August 15 Matrix traded in an old Car for a new one. The old Car had cost $12,000 and accumulated depreciation amounted to $8,000. The list price of the new Car was $18,000. Matrix received a $4,500 trade-in-allowance for the old Car and paid the $11,000 balance in cash.
Matrix traded in its old laptop as part of the purchase of a new system. The old laptop had cost $155,000 and, as of October 1, accumulated depreciation amounted to $115,000. The new laptop had a list price of $85,000. Matrix was granted a $12,000 trade-in allowance for the old laptop, paid $28,000 in cash, and issued a $52,000 2-year, 8% note payable to Action computers for the balance.
Instructions:
Prepare journal entries to record each of these transactions. Assume that depreciation expense on each asset already has been recorded up to the date of disposal. Thus you need not update the accumulated depreciation figures stated in the problem.
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