On January 1, Year 1, Prairie Enterprises issued common stock for $30,000 cash and purchased computer...

On January 1, Year 1, Prairie Enterprises issued common stock for $30,000 cash and purchased computer equipment for $28,000 cash. The equipment had a useful life of 5 years and a salvage value of $2,000. Prairie uses the straight line depreciation method.

How much Depreciation Expense does Prairie recognize each year?

What is the ending balance of Accumulated Depreciation at the end of Year 3?

What is the book value of the equipment at the beginning of Year 4?

What is the gain or loss if the equipment is sold for $13,000 at the beginning of Year 4?

What is the gain or loss if the equipment is sold for $1,000 at the beginning of Year 4?

Solutions

Expert Solution

1) How much Depreciation Expense does Prairie recognize each year?

Answer : $ 5,200 under straight line depreciation method ,assets is reduced uniformly each year.(w.n1)

2) What is the ending balance of Accumulated Depreciation at the end of Year 3?

Answer: $ 5,200+ $ 5,200+ $ 5,200 = $ 15,600 is Accumulated Depreciation at the end of Year 3 .(w.n1)

3) What is the book value of the equipment at the beginning of Year 4?

Answer: $ 12,400 (w.n .2)

4) What is the gain or loss if the equipment is sold for $13,000 at the beginning of Year 4?

Answer : Gain $ 600 ( $13,000 - $ 12400 is assets balance in the beginning of 4th year )

5) What is the gain or loss if the equipment is sold for $1,000 at the beginning of Year 4?

Answer : Loss $ 11,400 ( $ 12400 is assets balance in the beginning of 4th year - $1,000)

working note 1:

Straight line depreciation : cost of assets -salvage value / useful life .

=$ 28,000 - $ 2,000 / 5 years

= $5,200.

Depreciation chart :

year	Depreciation
1	$5,200
2	$ 5,200
3	$5,200
4	$5,200

$ 5,200

working note 2 :

year	Book value (Beginning of the year)	Depreciation	Book value (end of the year)
1	$28,000	$5,200	$22,800
2	$22,800	$5,200	$17,600
3	$17,600	$5,200	$12,400
4	$12.400

ekkarill92 answered 2 years ago

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