Question

Wiater Company operates a small manufacturing facility. On January 1, 2018, an asset account for the company showed the following balances:

Equipment	$	335,000
Accumulated Depreciation (beginning of the year)		210,000

During the first week of January 2018, the following cash expenditures were incurred for repairs and maintenance:

Routine maintenance and repairs on the equipment	$	3,250
Major overhaul of the equipment that improved efficiency		38,000

The equipment is being depreciated on a straight-line basis over an estimated life of 15 years with a $20,000 estimated residual value. The annual accounting period ends on December 31.

Required:

Indicate the effects (accounts, amounts, and + for increase and − for decrease) of the following two items on the accounting equation, using the headings shown below. (Enter any decreases to Assets, Liabilities or Stockholder's Equity with a minus sign.)

1. The adjustment for depreciation made last year at the end of 2017.

2. The two expenditures for repairs and maintenance during January 2018.

Answer 1

Accumulated depreciation is the total amount an asset has been depreciated up until a single point. Each period, the depreciation expense recorded in that period is added to the beginning accumulated depreciation balance. The adjustment of depreciation for year 2017:

1. The adjustment for depreciation made last year at the end of 2017.

Note:1
Cost of the Assets	335000
Residual Value	20000

Calculation of Deprecition based on Straight Line Method:

Formula:

=Cost Price-Residual Value/No. of Estimated years

=335000-20000/15

= $ 21,000

Date	Particulars	Debit	Credit
2017	Depreciation Expenses	21000
	Acumalated Depreciation		21000
	To Record the Adjustment of Depreciation for the year end of 2017

Any Expenditure which increase the earning capacity of the assets or increase the efficiency to generate revenue will be form part of the assets and such expenditure will be capatilized to the assets whereas expenses which are of routine base will be recorded in the income statement and such expenses do not form part of the assets or not capitalized.

2. The two expenditures for repairs and maintenance during January 2018.

Date	Particulars	Debit	Credit
Jan-18	Repairs and Maintenance Expenses	3,250
	To Cash		3,250
	To Record Adjustment of Repairs & Mintenance
Jan-18	Equipment	38,000
	To Cash		38,000
	To Record Adjustment of Major Overhaul of the equipment which improve the efficiency