Store Supplies on hand on December 31, 2020, amounted to $255,500. (ii) Insurance of $2,775,000 was paid on January 1, 2020, for the 15-months to March 31, 2021 (iii) Prepaid rent expired December 31, 2020, amounts to $850,000 (iv) The furniture and fixtures have an estimated useful life of 10 years and is being depreciated on the straight-line method down to a residual value of $50,000. (v) The machinery cost includes two coffee drink machines purchased for $900,000 each by the company on January 1, 2014. The double-declining balance method of depreciation is used to compute the machinery’s depreciation charges and their expected useful life is 10 years or 100,000 drinks. In 2014, 5,000 drinks were sold, 6,500 in 2015, 7,800 in 2016, 9,000 in 2017,
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.
The following information is available December 31, 2020:
(i) Store Supplies on hand on December 31, 2020, amounted to $255,500.
(ii) Insurance of $2,775,000 was paid on January 1, 2020, for the 15-months to March 31, 2021
(iii) Prepaid rent expired December 31, 2020, amounts to $850,000
(iv) The furniture and fixtures have an estimated useful life of 10 years and is being
(v) The machinery cost includes two coffee drink machines purchased for $900,000 each by
the company on January 1, 2014. The double-declining balance method of depreciation is used to compute the machinery’s depreciation charges and their expected useful life is 10 years or 100,000 drinks.
In 2014, 5,000 drinks were sold,
6,500 in 2015,
7,800 in 2016,
9,000 in 2017,
11,500 in 2018,
12,800 in 2019
15,900 sold in 2020.
The residual value on both machines is $96,637 each. On September 1, 2020, the company sold one of the coffee drinks machines for $480,000 cash.
(vi) Salaries earned by employees and not yet paid amounted to $180,000 on Dec 31, 2020.
(vii) Accrued interest expense as of December 31, 2020, $98,000.
(viii) On Dec 31, 2020, $695,000 of the previously unearned sales revenue had been earned
(ix) The aging of the
(x) A physical count of inventory was done on December 31, 2020, after making all the other adjustments and this revealed that there was $2,400,000 worth of inventory on hand at this point.
Other data:
(xi) The business is expected to make principal payments totaling $400,000 towards the loan during the fiscal year to December 31,2021.
Other data:
(xi) The business is expected to make principal payments totaling $400,000 towards the
loan during the fiscal year to December 31,2021.
Required:
Other data:
(xi) The business is expected to make principal payments totaling $400,000 towards the loan during the fiscal year to December 31,2021.
Required:
Other data:
(xi) The business is expected to make principal payments totaling $400,000 towards the loan during the fiscal year to December 31,2021.
Required:
a) Using the Adjusted
- A Classified
balance sheet , in report format, at December 31, 2020.
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