** On July 1, 2011, Gadget Twin Manufacturing purchased new equipment from Acme
ID: 2574254 • Letter: #
Question
**
On July 1, 2011, Gadget Twin Manufacturing purchased new equipment from Acme Equipment Company that had a purchase price (including sales tax) of $86,112. Acme charged $1,920 to deliver the equipment and $7,680 to install it at Gadget Twin’s site. Gadget Twin’s accountant provided the payment for the equipment, delivery, and installation to Acme that day. Gadget Twin had its own master-level employees perform trial runs on the equipment. This took 9.6 hours, and those employees earn $30 per hour. During the trial runs, there was some damage to one of the walls beside the equipment. Gadget Twin’s maintenance staff repaired the wall. The cost for the maintenance wages was $96. All wages for trial runs and wall repair will be paid at the end of the following week.
The equipment purchased by Gadget Twin Manufacturing (see the journal entry above) is expected to have a useful life of four years. At the end of its useful life, the residual value of the equipment is estimated to be $6,000. Gadget Twin Manufacturing’s fiscal year ends each December 31.
In the table to the below, calculate the equipment’s depreciation expense, the balance of accumulated depreciation, and the book value for each year the equipment is expected to be in service, using the straight-line method.
Straight-Line Method Year Depreciation Expense Accumulated Depreciation Book Value 2011 $ $ $ 2012 $ $ $ 2013 $ $ $ 2014 $ $ $ 2015 $ $ $Explanation / Answer
Calculation of Cost of Asset
Particular
Amounts ($)
Purchase Price
$86,112
Delivery Charges
$1,920
Installation Charges
$7,680
Total Capitalisation Value
$95,712
Useful Life of Asset
4 Year
Residual Value
$6,000
Calculation of Depreciation under Straight line method (SLM)
Depreciation =
Depreciable Amount
Useful Life
Depreciable amount equals cost minus residual value.
=
$95712- $6000 =
$22,428
4
Partial depreciation will be charged for year 2011, from 1 July to 31-Dec
Hence, $22,428 X 184 Days/365 days = $11,306
Straight Line Method
Year
Depreciation Expense
Accumulated Depreciation
Book Value
2011
$11,306
$11,306
$84,406
2012
$22,428
$33,734
$61,978
2013
$22,428
$56,162
$39,550
2014
$22,428
$78,590
$17,122
2015
$11,122
$89,712
$6,000
Note:
Calculation of Cost of Asset
Particular
Amounts ($)
Purchase Price
$86,112
Delivery Charges
$1,920
Installation Charges
$7,680
Total Capitalisation Value
$95,712
Useful Life of Asset
4 Year
Residual Value
$6,000
Calculation of Depreciation under Straight line method (SLM)
Depreciation =
Depreciable Amount
Useful Life
Depreciable amount equals cost minus residual value.
=
$95712- $6000 =
$22,428
4
Partial depreciation will be charged for year 2011, from 1 July to 31-Dec
Hence, $22,428 X 184 Days/365 days = $11,306
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