On May 1, 2014, the Sanderson Electrical Company purchased equipment to be used

Question

On May 1, 2014, the Sanderson Electrical Company purchased equipment to be used in its manufacturing process. The equipment cost $60,000, has a six-year useful life and no residual value. The company uses the straight-line depreciation method for all manufacturing equipment.

On January 4, 2016, $15,000 was spent to repair the equipment and to add a feature that increased its operating efficiency. Of the total expenditure, $4,000 represented ordinary repairs and annual maintenance and $11,000 represented the cost of the new feature. In addition to increasing operating efficiency, the total useful life of the equipment was extended to eight years.

Required:

Prepare journal entries for the following:

1.   Depreciation for 2014 and 2015.

2.   The 2016 expenditure.

3.   Depreciation for 2016.

Explanation / Answer

Journal entries :

Date accounts & explanation debit credit dec 31,2014 Depreciation expenses a/c (60000/6)*8/12 6667 Accumlated depreciation a/c 6667 (To record depreciation) Dec 31,2015 Depreciation expenses a/c (60000/6) 10000 Accumlated depreciation a/c 10000 (To record depreciation) Jan 4, 2016 Equipment a/c 11000 Repairs a/c 4000 Cash a/c 15000 (To record repair the equipment) Dec 31,2016 Depreciation expenses a/c 8359 Accumlated depreciation a/c 8359 (To record depreciation)

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