Question

In: Accounting

On Jan. 1, 2014 Zeyad Company purchased equipment at a cash price of $60,000. Related expenditures...

On Jan. 1, 2014 Zeyad Company purchased equipment at a cash price of $60,000. Related expenditures are custom 2,000 value added taxes $3,000, painting and lettering $2000, and a three-year accident insurance policy $1,500.

The useful life (productive life) of the equipment is four years.

The scrap value (salvage value or residual value) at the end of the life of the equipment is estimated 7,000.

Required:

1-Prepare the journal entry to record the amounts paid at Jan. 1, 2014.

2- Compute the annual depreciation of the equipment (use straight line method and declining balance method).

3- Prepare the journal entry to record the depreciation at Dec. 31, 2014.

4- Show the effect on the statement of income statement and statement of financial position (balance sheet) at Dec. 31, 2014.

5- complete the table.

The answer:

The general journal:

Date	Debit	Credit

The cost of equipment =

Compute the annual depreciation of the equipment (use straight line method).

The annual depreciation of the equipment=

3- Prepare the journal entry to record the depreciation at Dec. 31, 2014.

Date		Debit	Credit
Dec. 31, 2014

4- Show the effect on the statement of income statement and statement of financial position (balance sheet) at Dec. 31, 2014.

The income statement for the year ended Dec. 31, 2014

Expenses:

Depreciation expense

The statement of financial position (balance sheet) as of Dec. 31, 2014

Assets

Noncurrent assets:

Equipment

Less: Accumulated dep.

(The book value of equipment)

5- Complete the following table:

Year	Depreciation expense (income statement)	Accumulated depreciation (balance sheet)	Book value= Cost – accumulated depreciation
2014
2015
2016
2017

Expert Solution

Journal entry



1	01-01-2014	Equipment	Dr.		68500
		Cash		Cr.		68500

		* All cost related to equipment will become part of eqipment cost.

		Cash price	60000
		custom	2000
		value added tax	3000
		painting	2000
		policy	1500
			68500

2	Calculation for depreciation

	using straight line method-
	Cost	Salvage	life	Dep
	68500	7000	4	15375	per annuam for 4 years


3	Journal entry

	Depreciation	dr		15375
	Equipment			cr		15375

4
	Income Statement
	Expenses
	Depreciation	15375
	Total		15375



	Statement of financial position
	Assets
	Non current assets
	Equipment		68500
	Dep		15375
	book value		53125

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