
Concept explainers
1.
Depreciation refers to the reduction in the monetary value of a fixed asset due to its wear and tear or obsolescence. It is a method of distributing the cost of the fixed assets over its estimated useful life.
Partial period depreciation:
Partial period depreciation is calculated when acquisition and disposal occur at different times in a fiscal year, a company must determine the depreciation, depletion, and amortization to record for the part of the year that each asset actually is used.
To Calculate: Depreciation expense on the building, machinery, and equipment for 2016.
1.

Explanation of Solution
Company H uses
Straight line method:
Under the straight-line method of depreciation, the same amount of depreciation is allocated every year over the estimated useful life of an asset.
Sum-of- the-years’ digits (SYD) method:
Sum-of-the years’ digits method determines the depreciation expense by multiplying the depreciable base and declining fraction.
Depreciation for 2016:
Depreciation on building:
Depreciation on machinery:
Depreciation on equipment is as follows:
Year |
Depreciable Base ($) |
Depreciation rate per year |
Number of months the asset is in service |
Depreciation ($) |
|||
2016 | 147,000 |
|
|
|
|
= | 31,500 |
Table (1)
Working notes:
1. Calculate the sum of the digits
2. Calculate the value of depreciable base
Hence, the depreciation expense for the year 2016 on the building, machinery, and equipment are $15,000, $20,250, and $31,500.
2.
To prepare: The journal entries to record (1) depreciation on the machinery sold on June 29, 2017, and (2) the sale of machinery.
2.

Explanation of Solution
(1) Prepare
Date | Account titles and explanation |
Post Ref. |
Debit ($) |
Credit ($) |
June 29, 2017 |
Depreciation expense | 5,625 | ||
5,625 | ||||
(To record the depreciation entry) |
Table (2)
Working notes:
Calculate the depreciation expense on machinery.
In 2017, the machinery is used only for 6 months that is January to June then the depreciation for 2017 is as follows:
- Depreciation is an expense which decreases shareholders equity. Thus, it is debited.
- Accumulated depreciation is a contra asset which decreases assets value. Thus, it is credited.
(2) Prepare journal entry to record the sale of machinery.
Date | Account titles and explanation |
Post Ref. |
Debit ($) |
Credit ($) |
June 29, 2017 |
Cash | 80,000 | ||
Accumulated depreciation-machinery | 14,063 | |||
Loss on sale of machinery | 5,937 | |||
Machinery | 100,000 | |||
(To record the sale of machinery entry) |
Table (3)
Working Note:
Calculate accumulated depreciation on the machinery sold.
The machinery used for 15 months that is April 2018 to June 2019. Then the accumulated depreciation is calculated as follows:
Calculate the loss on sale of machinery.
- Cash is a current asset which is increased by sale of asset. Thus, it is debited.
- Accumulated depreciation is a contra asset which is increasing the value of the asset. Thus, it is debited.
- Loss on sale of the asset decreases shareholders equity. Thus, it is debited.
- Machinery is an asset. It is decreased because of sale of the machinery. Thus, it is credited.
3.
To Calculate: Depreciation expense on the building, machinery, and equipment for 2017.
3.

Explanation of Solution
Company H uses straight line method of depreciation on building and machinery. Sum of the years digit method used for equipment.
Depreciation for 2017:
Depreciation on building:
Depreciation on machinery:
Depreciation on equipment is as follows:
Year |
Depreciable Base ($) (2) |
Depreciation rate per year (1) |
Number of months the asset is in service |
Depreciation ($) |
|||
2017 | 147,000 |
|
|
|
|
= | 10,500 |
147,000 |
|
|
|
|
= | 26,250 | |
Total | 36,750 |
Table (4)
Hence, the depreciation expense for the year 2017 on the building, machinery, and equipment are $20,000, $15,750, and $36,750.
Want to see more full solutions like this?
Chapter 11 Solutions
INTERMEDIATE ACCOUNTING
- What is the net income percentage ?arrow_forwardCan you please answer the financial accounting question?arrow_forwardidentify the key factors that contributed to the collapse of Northern Rock bank. Compile documents and analysis of regulations (magazine articles, newspapers, online sources, working papers from different organizations, activity summaries, results reports, legal regulations, speeches, public statements, press conferences, etc.). Apply, in a practical and theoretical way, what has been learned in class about the financial world, regulation and risk management.arrow_forward
- AccountingAccountingISBN:9781337272094Author:WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.Publisher:Cengage Learning,Accounting Information SystemsAccountingISBN:9781337619202Author:Hall, James A.Publisher:Cengage Learning,
- Horngren's Cost Accounting: A Managerial Emphasis...AccountingISBN:9780134475585Author:Srikant M. Datar, Madhav V. RajanPublisher:PEARSONIntermediate AccountingAccountingISBN:9781259722660Author:J. David Spiceland, Mark W. Nelson, Wayne M ThomasPublisher:McGraw-Hill EducationFinancial and Managerial AccountingAccountingISBN:9781259726705Author:John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting PrinciplesPublisher:McGraw-Hill Education





