On April 1, 2014, the KB Toy Company purchased equipment to be used in its manuf
ID: 2559766 • Letter: O
Question
On April 1, 2014, the KB Toy Company purchased equipment to be used in its manufacturing process. The equipment cost $60,800, has an eight-year useful life, and has no residual value. The company uses the straight-line depreciation method for all manufacturing equipment.
On January 4, 2016, $15,200 was spent to repair the equipment and to add a feature that increased its operating efficiency. Of the total expenditure, $3,300 represented ordinary repairs and annual maintenance and $11,900 represented the cost of the new feature. In addition to increasing operating efficiency, the total useful life of the equipment was extended to 10 years.
Prepare journal entries for the depreciation for 2016
On April 1, 2014, the KB Toy Company purchased equipment to be used in its manufacturing process. The equipment cost $60,800, has an eight-year useful life, and has no residual value. The company uses the straight-line depreciation method for all manufacturing equipment.
On January 4, 2016, $15,200 was spent to repair the equipment and to add a feature that increased its operating efficiency. Of the total expenditure, $3,300 represented ordinary repairs and annual maintenance and $11,900 represented the cost of the new feature. In addition to increasing operating efficiency, the total useful life of the equipment was extended to 10 years.
Prepare journal entries for the depreciation for 2016
Explanation / Answer
Working Notes:-
1. Calculation of depreciated value of equipment as on 1st January 2016:
Cost of equipment =$60, 800
Useful life = 8 years
Depreciation per year=60,800/8=7,600
Hence value of equipment as on 1st January 2016=60,800-5,700(Depreciation for 9months)-7,600
=47,500
2.Calculation of depreciation for year 2016:-
Value of equipment as on 1st January 2016= 47,500
Cost of new feature added = 11,900
Revised cost of equipment (47,500+11,900)= 59,400
Total useful life of equipment =10 years, till 31st March 2024 or 99 months
Hence depreciation for 2016
=($59,400/99)*12=$7,200
Journal Entry for depreciation for 2016
DEBIT CREDIT
Depreciation 7,200
Equipment 7,200
(Depreciation on equipment for 2016 as calculated above)
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