On January 1, 2016, Tang Manufacturing Company purchased equipment for $70,000 and paid sales tax of...

On January 1, 2016, Tang Manufacturing Company purchased equipment for $70,000 and paid sales tax of $5,000. the equipment is expected to have a 4-year useful life and salvage value of $7,000. The company elects to use the staight-line depreciation method. Answer the follwoing "Show the work"

1) Compute the annual depreciation.

2) Compute the balance of accumulated depreciation at the end of 2017.

3) Compute the net book value of the equipment at the end of 2017

Scenario A: Tang sold on January 1, 2018 for $45,000.

4. Compute the amount of gain or loss from the sale.

Scenario B: Instead of selling the equipment at the beginning of 2018, Tang spent $10,000 on major repairs that extended the life of the assts. After the repair, Tang expects the salvage value to still be $7,000 and the remainning useful of the asst to be 3 years.

5) Recalculate the depreciation expense to be recognized in 2018

Solutions

Expert Solution

TOTAL COST OF EQUIPMENT
(PURCHAS VALUE + TAXES )			= $75000

USEFUL LIFE = 4 YEARS
SALVAGE VALUE = $7000

A. ANNUAL DEPRECIATION
$75000-7000/4 =17000

B. DEPRECIATION END OF 2017
WE HAVE CHARGES DEPRECIATION FROM Staight-line depreciation method.
SO EVERY YEAR DEPRECIATION AMONT WILL BE SAME IF THERE NO CHANGE IN ASSETS.
THEN TOTAL DEPRECIATION FOR 2 YEAR =$34000

C. THE NET BOOK VALUE OF THE EQUIPMENT AT THE END OF 2017
EQUIPMENT VALUE - DEPRECIATION
$75000-$34000= $41000

Scenario A:
IF SOLD RUPEES $ 45000 THEN PROFIT
POFIT = Sales value - Total cost on January 1, 2018
Pofit =$45000-$41000=$4000

Scenario B:
Recalculate the depreciation
TOTAL COST ON JANUARY 2018 = $41000
NOTE: FROM THE SPENT OF $10000 ON EQUIPMENT REPAIR USEFUL LIFE EXTEND 3 YEAR.YHEN DEPRECATION RECALCULATE.

DEPRECIATION END OF 2018 = $41000-$7000/5 = $6800

ekkarill92 answered 1 year ago

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