Question

On April 1, 2016, the KB Toy Company purchased equipment to be used in its manufacturing process. The equipment cost $57,200, 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, $14,750 was spent to repair the equipment and to add a feature that increased its operating efficiency. Of the total expenditure, $2,900 represented ordinary repairs and annual maintenance and $11,850 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

SOLUTION

S.No.	Date	Accounts titles and Explanation	Debit ($)	Credit ($)
1.	2016	Depreciation expense (57,200/10) *9/12	4,290
		Accumulated depreciation		4,290
		(To record the depreciation expense)
	2017	Depreciation expense (57,200/10)	5,720
		Accumulated depreciation		5,720
		(To record the depreciation expense)
2.	2018	Repair expense	2,900
		Equipment	11,850
		Cash		14,750
		(To record the repair expense)
3.	2018	Depreciation expense	5,760
		Accumulated depreciation		5,760
		(To record the depreciation expense)

* Accumulated depreciation = 4,290 + 5,720 = 10,010

Value as on 2018 = 57,200 - 10,010 = 47,190

Value of equipment after adding one more equipment = 47,190 + 11,850 = 59,040

Depreciation expense for 2018 = 59,040 / (12-1.75) = 5,760