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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 1 year ago
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