Select your language

Suggested languages for you:
Log In Start studying!
Answers without the blur. Just sign up for free and you're in → Illustration

Q3P

Expert-verified
Intermediate Accounting (Kieso)
Found in: Page 591

Short Answer

(Depreciation—SYD, Act., SL, and DDB) The following data relate to the Machinery account of Eshkol, Inc. at December 31, 2017.

Machinery

A

B

C

D

Original cost

$46,000

$51,000

$80,000

$80,000

Year purchased

2012

2013

2014

2016

Useful life

10 years

15,000 hours

15 years

10 years

Salvage value

$ 3,100

$ 3,000

$ 5,000

$ 5,000

Depreciation method

Sum-of-the year digits

Activity

Straight-line

Double-declining balance

Accum. depr. through 2017

$31,200

$35,200

$15,000

$16,000

*In the year an asset is purchased, Eshkol, Inc. does not record any depreciation expense on the asset. In the year an asset is retired or traded in, Eshkol, Inc. takes a full year’s depreciation on the asset.

The following transactions occurred during 2018.

  1. On May 5, Machine A was sold for $13,000 cash. The company’s bookkeeper recorded this retirement in the following manner in the cash receipts journal.

Cash 13,000

Machinery (Machine A) 13,000

b. On December 31, it was determined that Machine B had been used 2,100 hours during 2018.

c. On December 31, before computing depreciation expense on Machine C, the management of Eshkol, Inc. decided the useful life remaining from January 1, 2018, was 10 years.

d. On December 31, it was discovered that a machine purchased in 2017 had been expensed completely in that year. This machine cost $28,000 and has a useful life of 10 years and no salvage value. Management has decided to use the double-declining-balance method for this machine, which can be referred to as “Machine E.”

Instructions

Prepare the necessary correcting entries for the year 2018. Record the appropriate depreciation expense on the above-mentioned machines. No entry is necessary for Machine D.

  1. Accumulated depreciation = $3,900
  2. Accumulated depreciation = $6,720
  3. Accumulated depreciation = $6,000
  4. Accumulated depreciation = $5,600
See the step by step solution

Step by Step Solution

Step-by-Step SolutionStep 1: Meaning of Depreciation

Depreciation refers to the expense incurred on assets like plant and machinery, building and motor vehicles, etc., due to excess use or when the asset becomes obsolete. Except for land, all the assets depreciate with time.

Step 2: (a) Preparing journal entries.

Date

Particular

Debit ($)

Credit ($)

May 5, 2018

Depreciation Expense

3,900

Accumulated Depreciation

Machinery (A)

3,900

May 5, 2018

Accumulated Depreciation-Machinery (A)

35,100

Machinery (A)

33,000

Gain on Disposal of Machinery

2,100

Working notes:

Calculating the amount of accumulated depreciation

Calculating the sum of year digit

Calculation of gain on a disposable machine

Step 3: (b) Preparing journal entries.

Date

Particular

Debit ($)

Credit ($)

Dec. 31, 2018

Depreciation Expense

6,720

Accumulated Depreciation

Machinery (B)

6,720

Working notes:

Calculating accumulated depreciation

Step 4: (c) Preparing journal entries.

Date

Particular

Debit ($)

Credit ($)

Dec. 31, 2018

Depreciation Expense

6,000

Accumulated Depreciation

Machinery (C)

6,000

Working notes:

Calculating Accumulated depreciation

Step 5: (d) Preparing journal entries.

Date

Particular

Debit ($)

Credit ($)

Dec. 31, 2018

Machinery (E)

28,000

Retained Earnings

28,000

Depreciation Expense

5,600

Accumulated Depreciation

Machinery (E)

5,600

Most popular questions for Business-studies Textbooks

Icon

Want to see more solutions like these?

Sign up for free to discover our expert answers
Get Started - It’s free

Recommended explanations on Business-studies Textbooks

94% of StudySmarter users get better grades.

Sign up for free
94% of StudySmarter users get better grades.