Warhol Enterprises purchased a spray painter at the beginning of 2018 at a cost of $150,000. Costs for training personnel on usage of this painter were $200. Warhol estimated that the spray painter would have a residual value of $30,000. The company decided to use declining-balance method of depreciation at a rate of 20%. Two years later, at the end of 2020, Warhol sold the spray painter for $120,000. a. Calculate the book value of the spray painter at the end of 2018 and the end of 2019, prior to its sale. b. Calculate the gain or loss on the sale of the spray painter.c. Calculate the income statement effect, assuming that Warhol decided to give the spray painter to a charitable foundation.
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.
Warhol Enterprises purchased a spray painter at the beginning of 2018 at a cost of $150,000.
Costs for training personnel on usage of this painter were $200. Warhol estimated that the spray
painter would have a residual value of $30,000. The company decided to use declining-balance
method of
spray painter for $120,000.
a. Calculate the book value of the spray painter at the end of 2018 and the end of 2019, prior to its sale.
b. Calculate the gain or loss on the sale of the spray painter.c. Calculate the income statement effect, assuming that Warhol decided to give the spray
painter to a charitable foundation.
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