Question

Preparing adjusting entries (annual)—depreciation LO4
Mean Beans, a local coffee shop, has the following assets on January 1, 2017. Mean Beans prepares annual financial statements and has a December 31, 2017 year-end.

On January 1, 2017, purchase equipment costing $15,000 with an estimated life of five years. Mean Beans will scrap the equipment after five years for $0.
On July 1, 2017, purchase furniture (tables and chairs) costing $12,000 with an estimated life of ten years. Mean Beans estimates that it can sell the furniture for $2,000 after ten years.
On January 1, 2015, Mean Beans had purchased a car costing $25,000 with an estimated life of eight years. Mean Beans estimates that it can sell the car for $5,000 after eight years.
Assume Mean Beans, uses Straight Line Method to depreciate the asset.

Required
For each transaction, calculate the annual depreciation expense and record the adjusting entry on December 31, 2017.
For the car, determine the accumulated depreciation as of December 31, 2017.
For the car, determine the carrying amount as of December 31, 2017.

Answer 1

a)

Assets	Calculation of Depreciation Expense	Depreciation
Equipment	15000/5	$      3,000.00
Furniture	12000-2000/10*6/12	$          500.00
Car	25000-5000/8	$      2,500.00
	Total	$      6,000.00

Journal Entry

Date		Debit	Credit
31-Dec-17	Depreciation Expense	$      6,000.00
	Accumulated Depreciation		$ 6,000.00

b)

Calculation of Accumulated Depreciation for Car
Year
2015	25000-5000/8	$      2,500.00
2016	25000-5000/8	$      2,500.00
2017	25000-5000/8	$      2,500.00
	Total	$      7,500.00

c)

Asset Value	$ 25,000.00
Accumulated Depreciation	$    7,500.00
Carrying Value as on December 31,2017	$ 17,500.00