Question

In: Accounting

On January 2, 20x0, Chegal Ltd. purchased equipment for $100,000. Chegal had to spend an additional...

On January 2, 20x0, Chegal Ltd. purchased equipment for $100,000. Chegal had to spend an additional $10,000 for transportation and $15,000 for installation of the equipment. Assume that all of these were paid in cash. The equipment is expected to produce a total of 100,000 widgets over its life of 5 years. The residual value expected at the end of 5 years is $25,000. During 20x0, Chegal produced 19,000 widgets.

Required -

  1. Prepare the journal entry to record the acquisition of the equipment on January 2, 20x0.

  2. Prepare the journal entry at December 31, 20x0 to record the depreciation using the units-

    of-production method.

Items c, d and e do not require journal entries

c. Assume Chegal uses the straight-line method of depreciation. Calculate the depreciation expense for the year ended December 31, 20x0.

  1. Assume Chegal uses the diminishing balance method of depreciation at a rate of 40%. Calculate the depreciation expense for the year ended December 31, 20x0, 20x1, 20x2 and 20x3.

  2. Assume that the straight-line method is used and that the equipment is disposed of on December 31, 20x2 for $52,000. Calculate the gain or loss on disposal on sale of equipment. Depreciation expense for the year ended December 31, 20x2 has been recorded.

Solutions

Expert Solution

Part a
Purchase cost of Equipment $1,00,000
Add:Transportation cost $10,000
Add:Installation cost $15,000
Total Cost of Equipment $1,25,000
Less:Residual Value $25,000
Depreciable cost of Equipment $1,00,000
Depreciation under Units of production method =($100,000 / 100,000)*19,000 =$19,000
Part b
Date Account explanation Debit Credit
Jan 2,20X0 Equipment $1,25,000
Cash $1,25,000
Dec 31,20X0 Depreciation expense $19,000
Accumulated Depreciation-Equipment $19,000
Pat c
Depreciation under Straight-Line method =$100,000 / 5 Years =$20,000
Part d
Double Declining balance
Date Cost of asset Book Value DDB Rate Depreciation expenses Accumulated Depreciation Book value
At Acquistion $1,25,000 $1,25,000
20X0 $1,25,000 40.00% $50,000 $50,000 $75,000
20X1 $75,000 40.00% $30,000 $80,000 $45,000
20X2 $45,000 40.00% $18,000 $98,000 $27,000
20X3 $27,000 40.00% $2,000 $1,00,000 $25,000
Part e
Sales Value of Equipment $52,000
Book value as on Dec 31,20X2($125,000-$60,000) $65,000
Gain/(Loss on Asset)                                                                 (13,000)

ekkarill92 answered 2 years ago
Next > < Previous

Related Solutions

On January 2, 20x0, Chegal Ltd. purchased equipment for $100,000. Chegal had to spend an additional...
On January 2, 20x0, Chegal Ltd. purchased equipment for $100,000. Chegal had to spend an additional $10,000 for transportation and $15,000 for installation of the equipment. Assume that all of these were paid in cash. The equipment is expected to produce a total of 100,000 widgets over its life of 5 years. The residual value expected at the end of 5 years is $25,000. During 20x0, Chegal produced 19,000 widgets. Required - a. Prepare the journal entry to record the...
Bio Ltd purchased a piece of equipment in January 2016 for $5,000,000 which had an estimated...
Bio Ltd purchased a piece of equipment in January 2016 for $5,000,000 which had an estimated useful life of 8 years with no residual value. By 31 December 2018, new technology was introduced that would accelerate the obsolescence of this equipment. Bio Ltd estimated that the present value of the expected future net cash flows on this equipment would be $2,600,000 and that the fair value less cost to sell the equipment would be $2,800,000. Bio Ltd intends to continue...
Thank you in advance! Correct Full Solution required! On January 2, 20x0, the Lamia purchased a...
Thank you in advance! Correct Full Solution required! On January 2, 20x0, the Lamia purchased a building for $6,000,000. The cost of the building was allocated as follows: Cost Residual Value Useful Life External Structure $4,000,000 $400,000 40 All other components 2,000,000 0 15 On April 30, 20x12, the HVAC system is replaced at a cost of $600,000. The cost of the original HVAC system was $800,000 and was included in ‘All Other Components’. On April 30, 20x28, Lamia invested...
On 1 January 20X0, Zed Ltd acquired 90 % of the share capital of Ned Ltd...
On 1 January 20X0, Zed Ltd acquired 90 % of the share capital of Ned Ltd for $900 000 cash. At that date, the equity section of Ned Ltd’s balance sheet was as follows: $ Share capital 700 000 Retained profits 50 000 Asset revaluation reserve 100 000 Assume all assets and liabilities were recorded at their fair values, except for a piece of equipment recorded at $50 000 but Zed Ltd considers it to have a fair value of...
On January 1, 2018, Blossom Ltd. purchased equipment for $808,000. The equipment was assumed to have...
On January 1, 2018, Blossom Ltd. purchased equipment for $808,000. The equipment was assumed to have an 8-year useful life and no residual value, and was to be depreciated using the straight-line method. On January 1, 2020, Blossom's management became concerned that the equipment may have become obsolete. Management calculated that the undiscounted future net cash flows from the equipment was $580,750, the discounted future net cash flows was $515,100, and the current fair value of the equipment (after costs...
On January 1, 2012, Bushong Company purchased equipment at a cost of $12,600. The equipment had...
On January 1, 2012, Bushong Company purchased equipment at a cost of $12,600. The equipment had an estimated useful life of 6 years or 30,000 hours. The equipment will have a $1,200 salvage value at the end of its life. The equipment was used 6,500 hours in 2012. The depreciation expense for the year ending December 31, 2012, using the units-of-production method would be:
Balls & Bats, Inc. purchased equipment on January 1, 2005 at a cost of $100,000. Estimated...
Balls & Bats, Inc. purchased equipment on January 1, 2005 at a cost of $100,000. Estimated useful life is 4 years with a salvage value of $10,000. 1. Prepare two different depreciation schedules for the equipment, one using double-declining balance method and the other using the straight line method. 2. Which method would result in the greatest net income for the year ending Dec 31, 2005 3. How would taxes affect management's choice between these two methods for the financial...
On january 1, 2015, Equipment costing $100,000 was purchased. Depreciation of $42,000 was taken for 2015....
On january 1, 2015, Equipment costing $100,000 was purchased. Depreciation of $42,000 was taken for 2015. On december 31st the equipment was sold for $50,000. prepare the journal entries to record the purchase, depreciation and sale transactions.
2. Plant, Property and Equipment On January 2, 2016, SaulGroup purchased equipment at a cost of...
2. Plant, Property and Equipment On January 2, 2016, SaulGroup purchased equipment at a cost of $5 million. The equipment has a five-year life, no residual value, and is depreciated on a straight- line basis. On January 2, 2018, the fair value of the equipment (net of any accumulated depreciation) is determined as $6 million. a. If the revaluation model is applied for measurement subsequent to initialrecognition under IFRS, what is the impact the equipment has on SaulGroup’s income in...
ABC Ltd. sold equipment on June 30 2020 for $110,000. The equipment had originally been purchased...
ABC Ltd. sold equipment on June 30 2020 for $110,000. The equipment had originally been purchased for $160,000 on July 1, 2015. At the time of purchase, the equipment’s useful life was estimated to be ten years and to only be worth $10,000 as scrap value at that time. What was the gain or loss reported by ABC on the sale of the equipment? (State any assumptions you make).
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT