Patterson Company pays $292,700 for equipment expected to last four years and ha
ID: 2373584 • Letter: P
Question
Patterson Company pays $292,700 for equipment expected to last four years and have a $30,000 salvage value. Prepare journal entries to record the following costs related to the equipment.
During the second year of the equipment%u2019s life, $19,600 cash is paid for a new component expected to increase the equipment%u2019s productivity by 10% a year.
During the third year, $4,900 cash is paid for normal repairs necessary to keep the equipment in good working order
During the fourth year, $12,550 is paid for repairs expected to increase the useful life of the equipment from four to five years
1.2.
During the second year of the equipment%u2019s life, $19,600 cash is paid for a new component expected to increase the equipment%u2019s productivity by 10% a year.
During the third year, $4,900 cash is paid for normal repairs necessary to keep the equipment in good working order
During the fourth year, $12,550 is paid for repairs expected to increase the useful life of the equipment from four to five years
Explanation / Answer
$ $ year DEBIT CEDIT 1 equipment A/c DR 292700 To cash A/c 292700 (being equipment purchsed) 2 equipment A/c DR 19600 To cash A/c 19600 (being eqipment component pur.) Note: if exp for equipment result in increase in prductivity than it should be capitalsed 3 Repair on eqipmentA/c DR 4900 To cash A/c 4900 (being equipment repaired) 4 eqipment A/c DR 12550 TO cash A/c 12550 (being exp of repair capitalised) Note: exp of repar is of capital nature hence capitalised