On January 1, 2018, the general ledger of Parts Unlimited includes the following

Question

On January 1, 2018, the general ledger of Parts Unlimited includes the following account balances:

From January 1 to December 31, the following summary transactions occur:

Purchased inventory on account, $332,800.

Sold inventory on account, $593,200. The inventory cost $349,600.

Received cash from customers on account, $565,700.

Paid cash on account, $335,500.

Paid cash for salaries, $101,700, and for utilities, $59,700.

In addition, Parts Unlimited had the following transactions during the year:

Year-end adjusting entries:

Depreciation on the equipment purchased on April 1, 2018, calculated using the straight-line method.

Depreciation on the remaining equipment, $28,500.

Amortization of the patent purchased on June 30, 2018, using the straight-line method.

Accrued interest payable on the note payable.

Equipment with an original cost of $73,100 had the following related information at the end of the year: accumulated depreciation of $45,900, expected cash flows of $22,700, and a fair value of $14,300.

Accrued income taxes at the end of the year are $19,600.

Suppose the equipment purchased on April 1, 2018, had been depreciated using the units of production method. At the time of purchase, expected output was 20,000 units, and the actual output was 3000 units. Calculate the amount of depreciation expense that would have been recorded and determine the difference in income and total assets for 2018 (ignoring tax effects).

Thank you!

Accounts Debit Credit Cash $ 169,400 Accounts Receivable 19,400 Inventory 44,800 Land 347,000 Equipment 362,500 Accumulated depreciation $ 179,000 Accounts Payable 21,800 Common stock 527,000 Retained Earnings 215,300 Totals $ 943,100 $ 943,100

Explanation / Answer

In case of straight line method of depreciation in case of new equipment purchased and on patent purchased and considering fair value accounting for equipment for which expected cash flow and fair value estimate have been given, Depreciation expense, Income and Total Assets would have been as follows:

In case of units of production method of depreciation, for the new equipment purchased in April 2018, the Depreciation expense, Income and Total Assets would be as under:

Thus from the above analysis, the differences can be calculated in two different scenarios.

Accumulated Depreciation Account Particulars Amount Particulars Amount To, Sale of Equipment 44400 By, Opening Balance 179000 To, Closing Balance 195000 By, Depreciation (New Equipment) 9800 By, Depreciation (Equipment sold) 9200 By, Depreciation (Remaining Equipment) 28500 By, Depreciation (Fair value measuremment) 12900 Total 239400 Total 239400

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