Question

Stacey Company operates a small manufacturing facility as a supplement to its regular service activities. At the beginning of 2021, an asset account for the company showed the following balances:

Manufacturing equipment	$	66,900
Accumulated depreciation through 2020		52,000

In early January 2021, the following expenditures were incurred for repairs and maintenance:

Routine maintenance and repairs on the equipment	$	860
Major overhaul of the equipment		10,600

The equipment is being depreciated on a straight-line basis over an estimated life of 12 years, with a $4,500 estimated residual value. The company’s fiscal year ends on December 31.

Required:

1. Calculate the depreciation expense for the manufacturing equipment for 2020.

2. Prepare the journal entries to record the two expenditures that occurred during 2021. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

3. Prepare the adjusting entry at December 31, 2021, to record the depreciation of the manufacturing equipment, assuming no change in the estimated life or residual value of the equipment. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

4. Indicate the accounts affected and the amount of the effects of the journal entries you prepared for (1) to (3) on the accounting equation. (Enter any decreases to account balances with a minus sign.)

Answer 1

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Stacey
Answer 1	Amount $	Note
Cost of new equipment	66,900.00
Add: Overhauling cost	10,600.00
Less: Residual Value	4,500.00
Depreciable Value	73,000.00	B
Estimated life	12.00	C
Depreciation expense for 2021	6,083.00	D=B/C
Journal Entry 1
Account	Debit $	Credit $
Depreciation Expense- Equipment	6,083.00
Accumulated Depreciation- Equipment		6,083.00
Journal Entry 2
Account	Debit $	Credit $
Repairs Expense	860.00
Cash		860.00
Equipment	10,600.00
Cash		10,600.00
Answer 4	Assets	Liabilities	Shareholder's Equity
Dec 30, 2020	14,900.00	-
During 2021,
Repairs Expense			(860.00)
Expense Capitalized	10,600.00
Depreciation Expense	(6,083.00)
Dec 30, 2021	19,417.000	-	(860.000)