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Q43CP_1

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Horngren'S Financial And Managerial Accounting
Found in: Page 538

Short Answer

This problem continues the Canyon Canoe Company situation from Chapter 8. Amber and Zack Wilson are continuing to review business practices. Currently, theyare reviewing the company’s property, plant, and equipment and have gathered thefollowing information:

Asset

Acquisition Date

Cost

Estimated Life

Estimated Residual value

Depreciation Method

Monthly Depreciation Expense

Canoes

Nov. 3, 2018

$4,800

4 Years

$ 0

SL

$100

Land

Dec 1, 2018

85,000

n/a

Building

Dec 1, 2018

35,000

5 Years

5,000

SL

500

Canoes

Dec 2, 2018

7,200

4 Years

0

SL

150

Computer

Mar. 2, 2019

3,600

3 Years

300

DDB

Office Furniture

MAR. 3, 2019

3,000

5 Years

600

SL

*SL = Straight@line; DDB = Double@declining@balance

Requirements

1. Calculate the amount of monthly depreciation expense for the computer andoffice furniture for 2019.

2. For each asset, determine the book value as of December 31, 2018. Then, calculatethe depreciation expense for the first six months of 2019 and the book valueas of June 30, 2019.

3. Prepare a partial balance sheet showing Property, Plant, and Equipment as ofJune 30, 2019.

The monthly depreciation expense on computers and furniture is $200 and $40 respectively.

See the step by step solution

Step by Step Solution

Step 1: Meaning of Depreciation

Depreciation refers to the expense charged to the income statement yearly due to a decline in the value of the fixed asset.

Step2: Monthly depreciation expense for computer and office equipment

Calculation of depreciation on computer by double declining method

The depreciation rate is 66.67%

Calculation of depreciation on office furniture by straight line method

Step 3: Calculation of book value as of 31 Dec 2018

Asset (A)

Acquisition date

Cost (C)

Months up to Dec, 31 2018(B)

Monthly depreciation (D)

Depreciation

Up to 31 Dec 2018

(E = DXB)

Book Value

(F = C-E)

Canoes

Nov. 3 2018

4,800

2

$100

$200

4,600

Land

Dec 1. 2018

85,000

1

-

-

85,000

Building

Dec 1. 2018

35,000

1

$500

$500

34,500

Canoes

Dec 2. 2018

7,200

1

$150

$150

7,050

Step 4: Depreciation expense for the first 6 months and book value on June 30 2019

Asset (A)

Book Value

(C)

Monthly depreciation (D)

Depreciation for the 6 monthsE

Book Value

(F = C-E)

($)

Canoes

4,600

$100

$600

4,000

Land

85,000

-

-

85,000

Building

34,500

$500

$3,000

31,500

Canoes

7,050

$150

$900

6,150

Computer

3,600

$200

$800

2,800

Office Furniture

3,000

$40

$160

2,840

Step 5: Partial Balance sheet as on June 30, 2019

Balance Sheet Extract as on 30, June 2019

Property, Plant, and Equipment

Amount ($)

Amount ($)

Land

$85,000

Building

$35,000

Less: Accumulated Depreciation – building

(3,500)

31,500

Canoes

12,000

Less: Accumulated Depreciation – Canoes

(1,850)

10,150

Computer

3,600

Less: Accumulated Depreciation - Computer

(733)

2,867

Office Furniture

3,000

Less: Accumulated Depreciation – Office Furniture

(160)

2,840

Property, Plant, and Equipment, Net

$ 132,357

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