Togo’s Sandwich Shop had the following long-term asset balances as of January 1, 2021: Cost Accumulated Depreciation Book ValueLand $ 85,000 – $ 85,000Building 560,000 $ (201,600) 358,400Equipment 145,000 (30,000) 115,000Patent 125,000 (50,000) 75,000Togo’s purchased all the assets at the beginning of 2019 (3 years ago). The building is depreciated over a 10-year service life using the double-declining-balance method and estimating no residual value. The equipment is depreciated over a nine-year useful life using the straight-line method with an estimated residual value of $10,000. The patent is estimated to have a five-year service life with no residual value and is amortized using the straight-line method. Depreciation and amortization have been recorded for 2019 and 2020.Required:1. For the year ended December 31, 2021, record depreciation expense for buildings and equipment. Land is not depreciated.2. For the year ended December 31, 2021, record amortization expense for the patent.3. Calculate the book value for each of the four long-term assets at December 31, 2021.
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.
Togo’s Sandwich Shop had the following long-term asset balances as of January 1, 2021:
Cost
Land $ 85,000 – $ 85,000
Building 560,000 $ (201,600) 358,400
Equipment 145,000 (30,000) 115,000
Patent 125,000 (50,000) 75,000
Togo’s purchased all the assets at the beginning of 2019 (3 years ago). The building is
Required:
1. For the year ended December 31, 2021, record depreciation expense for buildings and equipment. Land is not depreciated.
2. For the year ended December 31, 2021, record amortization expense for the patent.
3. Calculate the book value for each of the four long-term assets at December 31, 2021.
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