Question

On April 1, 2016, the KB Toy Company purchased equipment to be used in its manufacturing process. The equipment cost $56,200, 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, $14,450 was spent to repair the equipment and to add a feature that increased its operating efficiency. Of the total expenditure, $2,800 represented ordinary repairs and annual maintenance and $11,650 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.

Answer 1

1. Prepare journal entries for the depreciation for 2016 and 2017.

Date	Description	Debit $	Credit $
2016	Depreciation Expanses	4215
	Accumulated Depreciation		4215
	(To record the depreciation expanses for the year 2016)
	(56200/10)*(9/12)= 41215

Date	Description	Debit $	Credit $
2017	Depreciation Expanses	5620
	Accumulated Depreciation		5620
	(To record the depreciation expanses for the year 2016)
	(56200/10)*= 5620

_____________________________________________________________________________

2. Prepare journal entries for the 2018 expenditure.

Date	Description	Debit $	Credit $
2018	Equipment	2800
	Maintenance Expanses	11650
	Cash		14450

_______________________________________________________________________________

3. Prepare journal entries for the depreciation for 2018.

Date	Description	Debit $	Credit $
2018	Depreciation Expanses	5660
	Accumulated Depreciation		5660
	(To record the depreciation expanses for the year 2018)

Working notes for depreciation calculation for 2018

Original Value of the equipment	56200
Less: Depreciation for
2016	4215
2017	5620
Written Down Value	46365
Add: Assets addition	11650
New Depreciable Base	58015

Depreciation for 2018

= New Depreciable Base / life remaining

=58015/10.25 year

=5660