On January 1, 2014, the Forman Company ledger shows Equipment $36,100 and Accumu
ID: 2476529 • Letter: O
Question
On January 1, 2014, the Forman Company ledger shows Equipment $36,100 and Accumulated Depreciation $12,900. The depreciation resulted from using the straight-line method with a useful life of 10 years and a salvage value of $3,850. On this date, the company concludes that the equipment has a remaining useful life of only 3 years with the same salvage value. Compute the revised annual depreciation. Downs Company purchases a patent for $158,000 on January 2, 2014. Its estimated useful life is 8 years. Prepare the journal entry to record amortization expense for the first year. Show how this patent is reported on the balance sheet at the end of the first year. Howe Chemicals Company acquires a delivery truck at a cost of $40,400 on January 1, 2014. The truck is expected to have a salvage value of $3,700 at the end of its 5-year useful life. Assuming the declining-balance depreciation rate is double the straight-line rate, compute annual depreciation for the first and second years under the declining-balance method.Explanation / Answer
9-5 Equipment 36,100.00 Accumulated Depreciation 12,900.00 Net book Value = 36,100 - 12,900 23,200.00 Salvage Value 3,850.00 Remaining life in years 3.00 Revised Annual dep = (23,200 - 3,850)/3 6,450.00 B) Patent Cost 158,000.00 Useful life in years 8.00 Amortisation Expense = 158,000/8 19,750.00 Journal Entry Particulars Dr Amt Cr Amt Patent Expense Dr 19,750.00 To Patent 19,750.00 Patents = 158,000 - 19,750 138,250.00 c) Cost of delivery Truck 40,400.00 Salvage Value 3,700.00 Life in Years 5.00 Double decling balance method rate = 20%*2 40% Particulars Year 1 Year2 Opening Balance 40,400.00 24,240.00 Depreciation@40% 16,160.00 9,696.00 Closing balance 24,240.00 14,544.00
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