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Mike Devereaux Company shows the following entries in its Equipment account for 2021. All amounts are based

Question:

Mike Devereaux Company shows the following entries in its Equipment account for 2021. All amounts are based on historical cost.

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Instructions

a. Prepare any correcting entries necessary.

b. Assuming that depreciation is to be charged for a full year on the ending balance in the asset account, compute the proper depreciation charge for 2021 under each of the methods listed below. Assume an estimated life of 10 years, with no salvage value. The machinery included in the January 1, 2021, balance was purchased in 2019.

1. Straight-line.

2. Sum-of-the-years?-digits.

Salvage Value
Salvage value is the estimated book value of an asset after depreciation is complete, based on what a company expects to receive in exchange for the asset at the end of its useful life. As such, an asset’s estimated salvage value is an important...
Transcribed Image Text:

Equipment 2021 134,750 June 30 2021 Cost of equipment sold (purchased prior to 2021) Jan. 1 Balance Aug. 10 Purchases 12 Freight on equipment 32,000 23,000 purchased 25 Installation costs 700 2,700 Nov. 10 Repairs 500

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a Maintenance and Repairs Expense 500 Equipment 500 b The proper ending balance in ...View the full answer


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Related Book For  answer-question
Intermediate Accounting

Intermediate Accounting

ISBN: 978-1119503668

17th edition

Authors: Donald E. Kieso, Jerry J. Weygandt, Terry D. Warfiel

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Depreciation of non-current assets is the process of allocating the cost of the asset over its useful life. The cost of the asset includes the purchase price, any additional costs incurred to bring the asset to its current condition and location, and any other costs that are directly attributable to the asset. The useful life of the asset is the period over which the asset is expected to be used by the company. To calculate the depreciation, companies use different methods such as straight-line, declining-balance, sum-of-the-years\'-digits, units-of-production, and group depreciation. The chosen method will depend on the type of asset, the company\'s accounting policies, and the accounting standards that are applicable. The straight-line method allocates an equal amount of the asset\'s cost over its useful life, while the declining-balance method calculates depreciation at a fixed rate, typically double the straight-line rate, but the amount of depreciation decreases over time. The sum-of-the-years\'-digits method is similar to the declining-balance method, but the rate of depreciation is calculated using a fraction that is based on the useful life of the asset. It\'s important to note that the depreciation expense will be recorded on the company\'s income statement and the accumulated depreciation will be recorded on the company\'s balance sheet. This will decrease the value of the asset on the balance sheet over time.

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