Foley Word Processing Service uses the straight-line method of depreciation. The

Question

Foley Word Processing Service uses the straight-line method of depreciation. The company's fiscal year end is December 31. The following transactions and events occurred during the first three years.

Prepare the necessary entries. (Show computations.)

2013 July 1 Purchased a computer from the Computer Center for $1,900 cash plus sales tax of $150, and shipping costs of $50. Nov. 3 Incurred ordinary repairs on computer of $140. Dec. 31 Recorded 2013 depreciation on the basis of a four year life and estimated salvage value of $500. 2014 Dec. 31 Recorded 2013 depreciation. 2015 Jan. 1 Paid $300 for an upgrade of the computer. This expenditure is expected to increase the operating efficiency and capacity of the computer.

Explanation / Answer

Journal entry :

Date account & explanation debit credit July 1,2013 Computer (1900+200) 2100 Cash 2100 (To record purchase computer) Nov 3,2013 Repairs and maintenance 140 Cash 140 (To record ordinary repairs) Dec 31,2013 Depreciation expense (2100-500/4) 400 Accumlated depreciation 400 (To record depreciation) Dec 31,2014 Depreciation expense 400   Accumlated depreciation 400 (To record depreciation) Jan 1,2015 Computer 300 Cash 300 (To record upgrade cost)

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