Question

Jasmine Company purchased equipment on January 1, 20x1. This is the only equipment that Jasmine company owns. The following information relates to this equipment:

Initial cost		$320,000
Estimated residual value		$19,000
Expected useful life		8 years
Estimated hours of useful life		22,000 hours
Depreciation method		Straight-line
Hours operated during 20x1		2,400 hours
Hours operated during 20x2		2,000 hours

Jasmine Company would report $ of depreciation expense in its December 31, 20x1 income statement and $ of depreciation expense in its December 31, 20x2 income statement.

Recording in the Accounting System

Prepare the journal entry that Jasmine would make to record depreciation on December 31, 20x1:

Dec. 31

Prepare the journal entry that Jasmine would make to record depreciation on December 31, 20x2:

Dec. 31

The journal entry to record depreciation expense is . At December 31, 20x1, Jasmine Company would report equipment on its balance sheet at $, which is the .

Answer 1

• All working forms part of the answer
• Depreciation method is STRAIGHT LINE METHOD as mentioned, hence, hours operated are irrelevant for depreciation purpose.

A	Cost	$        3,20,000.00
B	Residual Value	$            19,000.00
C=A - B	Depreciable base	$        3,01,000.00
D	Life [in years]	8
E=C/D	Annual SLM depreciation	$            37,625.00
Year	Book Value	Depreciation expense	Ending Book Value	Accumulated Depreciation
1	$    3,20,000.00	$            37,625.00	$      2,82,375.00	$       37,625.00
2	$    2,82,375.00	$            37,625.00	$      2,44,750.00	$       75,250.00

• Journal Entries for both years

Date	Accounts title	Debit	Credit
Dec 31 20x1	Depreciation expense-Equipment	$      37,625.00
	Accumulated Depreciation - Equipment		$ 37,625.00
	(depreciation expense recorded)
Dec 31 20x2	Depreciation expense-Equipment	$      37,625.00
	Accumulated Depreciation - Equipment		$ 37,625.00
	(depreciation expense recorded)

• Presentation in Balance Sheet:

Accumulated Depreciation:
20x1	$      37,625.00
20x2	$      37,625.00
Total	$      75,250.00

BALANCE SHEET

ASSETS:	20x1	20x2
Plant property & Equipment
Equipment	$          3,20,000.00	320000
Less: Accumulated Depreciation-Equipment	$             37,625.00	75250
Equipment, net	$          3,57,625.00	$ 3,95,250.00