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In: Accounting

On April 1, 2016, the KB Toy Company purchased equipment to be used in its manufacturing...

On April 1, 2016, the KB Toy Company purchased equipment to be used in its manufacturing process. The equipment cost $57,200, has an ten-year useful life, and has no residual value. The company uses the straight-line depreciation method for all manufacturing equipment.

On January 4, 2018, $14,750 was spent to repair the equipment and to add a feature that increased its operating efficiency. Of the total expenditure, $2,900 represented ordinary repairs and annual maintenance and $11,850 represented the cost of the new feature. In addition to increasing operating efficiency, the total useful life of the equipment was extended to 12 years.

Required:

1. Prepare journal entries for the depreciation for 2016 and 2017.
2. Prepare journal entries for the 2018 expenditure.
3. Prepare journal entries for the depreciation for 2018.

Solutions

Expert Solution

General Journal
Date Account Debit Credit
1 31-12-2016 Depriciation Expense (W.N 1)
         Accumulated Depriciation - Equipment 4290
(To Depriciation Expense recorded for the year ended 2016) 4290
31-12-2017 Depriciation Expense (W.N 1) 5720
         Accumulated Depriciation - Equipment 5720
(To Depriciation Expense recorded for the year ended 2017)
04-01-2018 Repairs and Maintenance Expense 2900
Equipment 11850
         Cash 14750
( To Repairs & maintenance expense recorded)
3 31-12-2017 Depriciation Expense (W.N 2) 5760
         Accumulated Depriciation - Equipment 5760
(To Depriciation Expense recorded for the year ended 2018)
W.N: 1
Depriciation Expense for 1 year =(57200/10)
5720
Depriciation Expense for April 2016 to December 2016 =5720*9/12
4290
W.N: 2 Calculation of Depriciation for the year ended December 2018
Equipment Cost 57200
Accumulated Depriciation for the year ended 2017 10010
Book Value as on 01-01-2018 47190
Add: Repaire expense capitalised 11850
Book Value depriciable for the year ended 2018 59040
Extended Life 12 Yrs
Depriciable Life (12Yrs less 1.75Yrs) 10.25 Yrs
Depriciable Amount for 2018 5760

ekkarill92 answered 2 years ago
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