Kitty Bakery purchased industrial baking ovens from Jang Appliance Manufacturing, Inc. for a purchase price of $367,000,
Question:
Kitty Bakery purchased industrial baking ovens from Jang Appliance Manufacturing, Inc. for a purchase price of $367,000, plus $10,000 in shipping costs. When the ovens arrived, employees of Kitty Bakery installed the ovens in the factory at a labor cost of $20,000. Kitty also hired an electrical contractor to perform some of the electrical work needed to get the ovens set up. Once the ovens were functional, Kitty ran some test bakes through the ovens, at a cost of $2,000 and installed new timers on the ovens at a cost of $1,000. Finally, Kitty began using the ovens to bake bread and other products for its customers on January 1, 2022.
Required:
- Give the journal entry that Ojha Bakery would have to make to record the acquisition of the ovens, including all relevant costs.
Date
Accounts
Dr.
Cr.
- Kitty uses the double-declining-balance method of depreciation for its factory equipment, including ovens. Kitty expects to be able to use these ovens in its factory for 10 years, at which point they expect to be able to sell them to another company. Their best estimate of the value of the ovens at the end of 10 years is $45,000. Complete the following table that indicates the annual depreciation expense:
Year | Depreciation Expense | Remaining Book Value |
2022 | ||
2023 | ||
2024 | ||
2025 | ||
2026 | ||
2027 | ||
2028 | ||
2029 | ||
2030 | ||
2031 |
- Suppose Kitty chose instead to use the straight-line method of depreciation.
- What would be the depreciation expense in 2022? Show your computation.
- What would be the book value of the ovens at December 31, 2022? Show your computations.
- How much higher or lower would Kitty income be in 2022 using the straight-line method.
- Briefly explain to someone who doesn’t know anything about accounting how there could be two different measures of depreciation expense and of income for the same situation.
Expert Answer:
Part 1 Journal entry As per standards when new machinery asset is installed then all relevant necessary cost to start use of machinery is added to pur... View the full answer
