On May 10, 2007, the Horan Company purchased equipment for $25,000. The equipment has an estimated service life of five years and zero residual value. Assume that straight-line depreciation is used. Required Compute the depreciation for 2007 for each of
On May 10, 2007, the Horan Company purchased equipment for $25,000. The equipment has an estimated service life of five years and zero residual value. Assume that straight-line depreciation is used.
Required
Compute the depreciation for 2007 for each of the following four alternatives:
1. The company computes depreciation to the nearest day. (Use 12 months of 30 days each.)
2. The company computes depreciation to the nearest month. Assets purchased in the first half of the month are considered owned for the whole month.
3. The company computes depreciation to the nearest whole year. Assets purchased in the first half of the year are considered owned for the whole year.
4. The company records one-half year’s depreciation on all assets purchased during the year.
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Intermediate Accounting
ISBN: 978-0324300987
10th Edition
Authors: Loren A Nikolai, D. Bazley and Jefferson P. Jones
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In accounting terms, depreciation is defined as the reduction of the recorded cost of a fixed asset in a systematic manner until the value of the asset becomes zero or negligible. An example of fixed assets are buildings, furniture, office equipment, machinery, etc. The land is the only exception that cannot be depreciated as the value of land appreciates with time. Depreciation allows a portion of the cost of a fixed asset to be the revenue generated by the fixed asset. This is mandatory under the matching principle as revenues are recorded with their associated expenses in the accounting period when the asset is in use. This helps in getting a complete picture of the revenue
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