In: Accounting
P11.6 The following data relate to the Plant Assets account of Keller Inc. at December 31, 2019:
A | B | C | D | |||||
Original cost | $46,000 | $58,000 | $68,000 | $73,000 | ||||
Year purchased | 2014 | 2015 | 2016 | 2017 | ||||
Useful life | 10 years | 17,000 hours | 15 years | 10 years | ||||
Residual value | $3,900 | $4,450 | $8,000 | $4,700 | ||||
Depreciation method | straight-line | activity | straight-line | double-declining | ||||
Accumulated depreciation through 2019 | $21,050 | $31,600 | $12,000 | $26,280 |
Note: In the year an asset is purchased, Keller does not record any depreciation expense on the asset. In the year an asset is retired or traded in, Keller takes a full year's depreciation on the asset.
The following transactions occurred during 2020:
Cash | 16,500 | |||
Asset A | 16,500 |
Instructions
a. Prepare any necessary adjusting journal entries required at December 31, 2020, as well as any entries to record depreciation for 2020. Round all amounts to the nearest dollar.
b. As an owner of Keller Inc., do you have any concerns with respect to the bookkeeper's work?
Answer:
a. |
Depreciation Expense1 |
4,210 |
|
Accumulated Depreciation—Asset A |
4,210 |
||
1 ($46,000 – $3,900) ÷ 10 To record depreciation on Asset A |
|||
Accumulated Depreciation—Asset A |
25,260 |
||
($21,050 + $4,210) |
|||
Loss on Disposal of Assets |
4,240 |
||
Asset A ($46,000 – $16,500) |
29,500 |
||
To record disposal of Asset A |
|||
Depreciation Expense2 |
10,080 |
||
Accumulated Depreciation—Asset B |
10,080 |
||
2([$58,000 – $4,450] ÷17,000 X 3,200) |
|||
To record depreciation on Asset B |
|||
Depreciation Expense3 |
4,800 |
||
Accumulated Depreciation—Asset C |
4,800 |
||
3([$68,000 – $12,000 – $8,000] ÷ 10) |
|||
To record depreciation on Asset C |
|||
Asset E |
31,000 |
||
Retained Earnings |
31,000 |
||
To record cost of Asset E |
|||
Depreciation Expense4 |
6,200 |
||
Accumulated Depreciation—Asset E |
6,200 |
||
4($31,000 – $0) X 20% |
|||
To record depreciation on Asset E |
|||
Depreciation Expense5 |
9,344 |
||
Accumulated Depreciation—Asset D |
9,344 |
||
5($73,000 – $26,280) x 20% |
|||
To record depreciation on Asset D |
b.
Given that the bookkeeper failed to properly record the disposition of A to reflect the removal of the accumulated depreciation and the cost of the asset along with the loss on disposal, management should be concerned. The bookkeeper does not appear to have the requisite knowledge to properly record dispositions. Similarly, with respect to the asset acquired in 2019, the bookkeeper expensed the asset despite its cost of $31,000.This error will need to reported on the statement of retained earnings (ASPE) or the statement of changes in equity (IFRS) and will be source of embarrassment for the company. It appears that the bookkeeper should undergo some additional training to upgrade his/her skills or management should seek to replace him/her.