On January 1, 2019, Pete Company purchases manufacturing equipment for $120,000. Installation and delivery costs totaled...

On January 1, 2019, Pete Company purchases manufacturing equipment for $120,000. Installation and delivery costs totaled $8,000. Yearly maintenance costs on the equipment are expected to be $6,000. The expected useful life is 8 years with a salvage value of $12,000.

- What amount should Pete Company have in its equipment account after the purchase?

- What amount of depreciation expense would Pete Company record in 2019?

- What amount of accumulated depreciation expense would Pete Company report on its December 31, 2021 balance sheet?

- What is the book value of the equipment on December 31, 2023?

- What amount of gain or loss would Pete Company record if it sold the equipment for $36,000 on January 1, 2025?

Thanks in advance

Expert Solution

What amount should Pete Company have in its equipment account after the purchase?
Equipment Value = Original Cost + Installation and delivery costs
= $120,000 + $8,000 = $128,000

What amount of depreciation expense would Pete Company record in 2019?
Depreciation Expense = (Original Cost - Salvage Value) / Useful Life
= ($128,000 - $12000) / 8 = $14500 per year

What amount of accumulated depreciation expense would Pete Company report on its December 31, 2021 balance sheet?
Accumulated depreciation on December 31, 2021 = $14500 x 3 = $43500

What is the book value of the equipment on December 31, 2023?
Accumulated depreciation on December 31, 2023 = $14500 x 5 = $72500
Book Value of Equipment = Original Cost - Accumulated Depreciation
= $128000 - $72500 = $55500

What amount of gain or loss would Pete Company record if it sold the equipment for $36,000 on January 1, 2025?Accumulated depreciation on December 31, 2024 = $14500 x 6 = $87000
Book Value of Equipment = Original Cost - Accumulated Depreciation
= $128000 - $87000 = $41000
Since sale value is less than book value, there is loss on sale
i.e. $41000 - $36000 = $5000

ekkarill92 answered 1 year ago

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