Canada Canning Company owns processing equipment that had an initial cost of $10
ID: 2554093 • Letter: C
Question
Canada Canning Company owns processing equipment that had an initial cost of $106,000, expected useful life of eight years, and expected residual value of $10,000. Depreciation calculations are done to the nearest month using the straight-line method, and depreciation is recorded each December 31.
During the equipment's fifth year of service, the following expenditures were made:
Jan. 7
Lubricated and adjusted the equipment to maintain optimum performance, at a cost of $500.
Mar. 13
Replaced belts, hoses, and other parts that were showing signs of wear on the equipment, at a cost of $350.
June 28
Completed a $14,000 overhaul of the equipment. The work included the installation of new computer controls to replace the original controls, which had become technologically obsolete. As a result of this work, the equipment's estimated useful life was increased to 10 years and the estimated residual value was increased to $11,000.
Required:
a.
Prepare journal entries to record each of the above transactions.
b.
Calculate the depreciation expense that should be recorded for this equipment in the fourth year of its life, in the fifth year of its life (the year in which the above transactions took place), and in the sixth year of its life.
Jan. 7
Lubricated and adjusted the equipment to maintain optimum performance, at a cost of $500.
Mar. 13
Replaced belts, hoses, and other parts that were showing signs of wear on the equipment, at a cost of $350.
June 28
Completed a $14,000 overhaul of the equipment. The work included the installation of new computer controls to replace the original controls, which had become technologically obsolete. As a result of this work, the equipment's estimated useful life was increased to 10 years and the estimated residual value was increased to $11,000.
Explanation / Answer
Journal Entries
date
explanation
debit
credit
7-Jan
repairs
500
cash
500
13-Mar
repairs
350
cash
350
28-Jun
equipment
14000
cash
14000
Depreciation
cost of equipment
106000
less scrap value
10000
amount to be depreciated
96000
life of equipment
8 years
annual depreciation
96000/8
12000
Depreciation in Year
12000
Depreciation expense in year 5
Depreciation for first 6 months
12000*50%
6000
depreciation for last 6th month after overhaul
10000/2
5000
amount of annual depreciation in year 5
11000
Book value of equipment after 4.5 Years
Cost of equipment
106000
accumulated depreciation
12000*4.5
54000
Book value of equipment after 4.5 Years
52000
addition in equipment
14000
value of equipment after overhaul
52000+14000
66000
less scrap value
11000
amount to be depreciated
55000
remaining life of equipment
5.5 years
Annual depreciation after overhaul
55000/5.5
10000
amount of depreciation for half a year
10000/2
5000
amount of annual depreciation In year 6th
10000
Journal Entries
date
explanation
debit
credit
7-Jan
repairs
500
cash
500
13-Mar
repairs
350
cash
350
28-Jun
equipment
14000
cash
14000
Depreciation
cost of equipment
106000
less scrap value
10000
amount to be depreciated
96000
life of equipment
8 years
annual depreciation
96000/8
12000
Depreciation in Year
12000
Depreciation expense in year 5
Depreciation for first 6 months
12000*50%
6000
depreciation for last 6th month after overhaul
10000/2
5000
amount of annual depreciation in year 5
11000
Book value of equipment after 4.5 Years
Cost of equipment
106000
accumulated depreciation
12000*4.5
54000
Book value of equipment after 4.5 Years
52000
addition in equipment
14000
value of equipment after overhaul
52000+14000
66000
less scrap value
11000
amount to be depreciated
55000
remaining life of equipment
5.5 years
Annual depreciation after overhaul
55000/5.5
10000
amount of depreciation for half a year
10000/2
5000
amount of annual depreciation In year 6th
10000
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