On July 1, 2014 Yama Inc.’s ledger shows its capital assets at $144,000 (at cost) and accumulated depreciation of $55,000. When the capital assets were purchased, Yama estimated that their useful life would be 7 years. On October 1, 2014, Yama paid $26,000 for additional investment on the capital assets, and as a result, it estimated its residual value had increased from $4,000 to $8,000, and the useful life had increased by 2 years. Yama uses straight-line amortization. On April 1, 2016, Yama sold these capital assets for $60,000. Yama’s year-end date is June 30.

Requirements

1. What was the age of the capital assets? What was the annual depreciation amount?

2. Prepare the journal entry to record the betterment.

3. Prepare the adjusting entry for the depreciation expense at the end of the year.

4. What is the impact on the income statement after the betterment has been completed?

5. Prepare the journal entry to record the disposal of the capital assets.