Notice in both it is double decline method, thank you d. Vargo\'s property plant

Question

Notice in both it is double decline method, thank you

d. Vargo's property plant and equipment consists of a building with a cost of $800,000 and a salvage value of $60,000 with a 15 year life purchased on 6/1/13 and a piece of equipment that cost $88,000 and a salvage value of $4,000 with a 5 year life purchased on 9/1/15. Vargo incurred delivery and installation charges of $8,000 on the equipment. Vargo spent $39,000 painting the building during 2017. On 1/1/17, Vargo revised the estimate on the life of the building. Vargo now estimates that the building will be in service until 12/31/30 On 10/1/17, Vargo exchanged the piece of equipment for a similar piece of equipment with the Eakin Company. The transaction had no commercial substance. The fair value of the equipment they gave up was $39,000. The fair value of the equipment received from Eakin was $34,000. In addition to the equipment, they received $5,000 in cash. Prepare the journal entry to record the transaction on Vargo's books. Vargo considers depreciation to be an administrative expense. Compute depreciation expense for the building and equipment for 2017. Vargo computes depreciation to the nearest month and uses the 200% (double) declining balance method for both the building and equipment.

Explanation / Answer

solution : Journal Entries

In the books of vargo

To, cash A/c

(Being expenses done for painting

the building)

Calculation of revised depreciation of building

previous depreciation amount = 800,000 - 60,000/15 = 49,333

so, 49333/800000-60000 = 6.66*2= 13.33% 0n diminishing balance

2013 800000 - 800000*13.33% = 693336

2014 693336 - 693336*13.33% = 600914

2015 600914 - 600914*13.33% = 520812

2016 520812 - 520812*13.33% = 451388

now vargo is estimating today i.e on 1/1/2017 that now building will give services till 31/12/2030 means 14 more years from now, so revised depreciation

451388 - 60000/14 = 27956

27956/451388-60000 = 7.14*2 =14.28%

so depreciation for the year = 451388*14.28% = 64458

Now for equipment

depreciation = 88000 + 8000 - 4000/ 5 = 18400

rate = 18400/96000-4000= 20*2 = 40%

so, depreciation for the year = 39000 * 40% = 15600

Date Particular debit credit 2017 Painting expenses A/c DR. $39,000

To, cash A/c

(Being expenses done for painting

the building)

$39,000 10/01/2017 Equipment A/c dr. $39,000 To, old equipment A/c $34,000 To, Cash A/c $5,000 (being equipment exchanged for new equipment) 31/12/2017 depreciation A/c Dr. $64458 To, building A/c $64458 (Depreciation Charged on building) 31/12/2017 Depreciation A/c Dr. $15600 To equipment A/c $15600 (Being depreciation charged on equipment)

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