Wiater Company operates a small manufacturing facility. On January 1, 2021, an asset account for the company showed the following balances: Equipment $ 280,000 Accumulated Depreciation (beginning of the year) 130,000 During the first week of January 2021, the following cash expenditures were incurred for repairs and maintenance: Routine maintenance and repairs on the equipment $ 2,850 Major overhaul of the equipment that improved efficiency 34,000 The equipment is being depreciated on a straight-line basis over an estimated life of 20 years with a $20,000 estimated residual value. The annual accounting period ends on December 31. Required: Prepare the adjusting journal entry that would have been made at the end of 2020 for depreciation on the manufacturing equipment. Starting at the beginning of 2021, what is the remaining estimated life? Prepare the journal entries to record the two expenditures for repairs and maintenance during 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.
Wiater Company operates a small manufacturing facility. On January 1, 2021, an asset account for the company showed the following balances:
| Equipment | $ 280,000 |
|---|---|
| 130,000 |
During the first week of January 2021, the following cash expenditures were incurred for repairs and maintenance:
| Routine maintenance and repairs on the equipment | $ 2,850 |
|---|---|
| Major overhaul of the equipment that improved efficiency | 34,000 |
The equipment is being depreciated on a straight-line basis over an estimated life of 20 years with a $20,000 estimated residual value. The annual accounting period ends on December 31.
Required:
-
Prepare the
adjusting journal entry that would have been made at the end of 2020 for depreciation on the manufacturing equipment. -
Starting at the beginning of 2021, what is the remaining estimated life?
-
Prepare the journal entries to record the two expenditures for repairs and maintenance during 2021.
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