Question

In: Accounting

1. On 5 September 2018, Norris Corporation purchased a computer equipment for $100,000, paid $20,000 cash...

1. On 5 September 2018, Norris Corporation purchased a computer equipment for $100,000, paid $20,000 cash and signed a 6% two-year notes payable for the remaining balance. The equipment was expected to be used for 4 years with a residual value of $10,000. Straight-line depreciation method is used. Depreciation for fractional years is recorded to the nearest full month. The financial year-end date is 31 December.

On 25 February 2020, the company spent $25,000 to completely overhaul the equipment. The management believes the estimated useful life of the equipment will be extended for 3 years more with residual value of $6,000, with effect on 25 February 2020.

Required:

Calculate the depreciation expense of the computer equipment for the year of 2020. Show your workings. (Round ALL answers to 2 decimal places.)

2. Marvel Company purchased motor vehicle costing $1,200,000 on 15 September 2017. The motor vehicle has an estimated useful life of 5 years and residual value of $200,000. Straight-line depreciation method is used. Half-year convention is adopted. On 5 March 2020, the company sold the motor vehicle for $400,000 cash. The company adjusts its accounts annually with the year-end at 31 December.

Required:

  1. (a) Prepare the journal entries to update the depreciation before disposal in 2020;

  2. (b) Prepare the journal entries on 5 March 2020 regarding to the disposal.

Solutions

Expert Solution

1
Depreciation for 2018 = $ (((100000-10000)/4)*4/12) = $ 7500
Depreciation for 2019 = $ (((100000-10000)/4)=$ 22500
Depreciation for 2020 = $ (((100000-10000)/4)*2/12=$ 3750
Depreciation for 2020 = $ (((100000+25000-6000-7500-22500-3750)/5)*10/12=$ 14208.33
Total Depreciation for 2020 = 3750 + 14208.33 = $ 17958.33
2
Depreciation for 2017 = $(((1200000 - 200000)/5))/2 = $ 100000
Depreciation for 2018 = $ ((1200000 - 200000)/5) = $ 200000
Depreciation for 2019 = $ ((1200000 - 200000)/5) = $ 200000
Depreciation for 2020 = $ ((1200000 - 200000)/5) *2/12= $ 33333.33
Date Particulars Debit Credit
05-Mar-20 Depreciation Expense            33,333.33
To Accumulated Depreciation                  33,333.33
( for 2020)
05-Mar-20 Accumulated Depreciation         5,33,333.33
Cash         4,00,000.00
Loss on Disposal ofEquipment         2,66,666.67
To Equipment account            12,00,000.00

ekkarill92 answered 1 year ago
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