Exercise 1- Recording depreciation schedules: Or Inc.\'s fiscal year ends on Dec
ID: 2553566 • Letter: E
Question
Exercise 1- Recording depreciation schedules: Or Inc.'s fiscal year ends on December 31. On June 30, 2016, Or Inc. purchased a truck at a cost of $104,000. The estimated useful life of the truck is 25,000 miles or 2 years. The residual value is estimated at S4,000. Below is information on the actual truck mileage during the years 2016, 2017, 2018: 2016: 7,000 miles 2017: 8,000 miles 2018: 10,000 miles Required: (a) Calculate and show the depreciation expense, accumulated depreciation, and net book value for the years 2016 to 2018, inclusive, under the assumption that the firm uses: Straight line depreciation Units-of-production depreciation a. b. b) For this part assume that the Or Inc. uses units-of-production depreciation. On December 31 2017, Or Inc. had a reason to believe that the machine was impaired. The company estimated the future cash flows at S35,000 and the fair value of the truck at $28,000. Does Or. Inc. need to record an impairment charge? If so, explain why and record the journal entry for the impairment. (c) For this part assume that the Or Inc. uses units-of-production depreciation. Also assume that the truck was sold on December 31, 2016, for $70,000 in cash. Record the journal entry for the sale.Explanation / Answer
Depreciable Basis =cost -salvage
= 104000--4000
= 100000
Depreciation under straight Line : 100000/2=50000
29000-25000=4000
Depreciation rate under units of production method : 100000/25000=$ 4 per unit
b)
Book value at end of year 2017 : 44000
Net recoverable amount :Lower of Future cash flow or fair value of truck
35000 or 28000
28000
since the carrying value is more than net recoverable amount ,Truck is impaired :
Impairment loss 44000-28000=16000
c)
Straight LIne method Depreciation expense Accumulated depreciation Net Book value 2016 50000*6/12= 25000 [30june -31dec] 25000 104000-25000=79000 2017 50000 75000 79000-50000=29000 2018 25000 [1jan -30 june ] 10000029000-25000=4000
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