Question

In: Accounting

7)    On January 1, Tiger Corp. paid $66,000 cash for machinery that was expected to...

7)    On January 1, Tiger Corp. paid $66,000 cash for machinery that was expected to last for 11 years.

  1. Is the machinery a current asset or a long-term asset? Why?
  1. Give Tiger’s journal entry to record the purchase of the machinery.
  1. Give Tiger’s journal entry to record depreciation expense on the machinery for the first year.
  1. Give Tiger’s journal entry to record depreciation expense on the machinery for the second year.
  1. What is the balance in accumulated depreciation at the end of the first year? At the end of the second year?
  1. What is the net (book) value of the machinery at the end of the first year? At the end of the second year? At the end of the 11th year?

Solutions

Expert Solution

Straight line Method

A

Cost

$        66,000.00

B

Residual Value

$                        -  

C=A - B

Depreciable base

$        66,000.00

D

Life [in years left ]

                          11

E=C/D

Annual SLM depreciation

$           6,000.00

Year

Book Value

Depreciation expense

Ending Book Value

Accumulated Depreciation

1

$             66,000.00

$           6,000.00

$      60,000.00

$         6,000.00

2

$             60,000.00

$           6,000.00

$      54,000.00

$      12,000.00

3

$             54,000.00

$           6,000.00

$      48,000.00

$      18,000.00

4

$             48,000.00

$           6,000.00

$      42,000.00

$      24,000.00

5

$             42,000.00

$           6,000.00

$      36,000.00

$      30,000.00

6

$             36,000.00

$           6,000.00

$      30,000.00

$      36,000.00

7

$             30,000.00

$           6,000.00

$      24,000.00

$      42,000.00

8

$             24,000.00

$           6,000.00

$      18,000.00

$      48,000.00

9

$             18,000.00

$           6,000.00

$      12,000.00

$      54,000.00

10

$             12,000.00

$           6,000.00

$         6,000.00

$      60,000.00

11

$                6,000.00

$           6,000.00

$                      -  

$      66,000.00

Solutions’

  1. Is the machinery a current asset or a long-term asset? Why?

Machinery is not a current asset it’s a long term fixed asset.

An asset is called current asset when it is expected to last for a year but an asset for more than a year is considered a long term asset.

  1. Give Tiger’s journal entry to record the purchase of the machinery.

Date

Accounts title

Debit

Credit

xxxxxx

Machinery

$      66,000.00

      Cash

$ 66,000.00

(To record purchase of equipment)

  1. Give Tiger’s journal entry to record depreciation expense on the machinery for the first year.

Year 1

Depreciation expense- Machinery

$        6,000.00

       Accumulated Depreciation – Machinery

$     6,000.00

(depreciation expense recorded)

  1. Give Tiger’s journal entry to record depreciation expense on the machinery for the second year.

Year 1

Depreciation expense- Machinery

$        6,000.00

        Accumulated Depreciation – Machinery

$     6,000.00

(depreciation expense recorded)

  1. What is the balance in accumulated depreciation at the end of the first year? At the end of the second year?

Balance of accumulated depreciation at the end of year 1 = $6000

At the end of second year = $12000

  1. What is the net (book) value of the machinery at the end of the first year? At the end of the second year? At the end of the 11th year?

Book value at the end of first year = $60000

At the end of second year = $54000

At the end of 11th year = $0.00


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