Mike Devereaux Company shows the following entries in its Equipment account for
ID: 2468383 • Letter: M
Question
Mike Devereaux Company shows the following entries in its Equipment account for 2015. All amounts are based on historical cost.
Prepare correcting entry if necessary.
Assuming that depreciation is to be charged for a full year on the ending balance in the asset account, compute the proper depreciation charge for 2015 under each of the methods listed below. Assume an estimated life of 10 years, with no salvage value. The machinery included in the January 1, 2015, balance was purchased in 2013.Prepare correcting entry if necessary.
(1) Straight-line. $
(2) Sum-of-the-year's-digits. $
2015 2015 Jan. 1 Balance 141,500 June 30 Cost of Equipment Sold Aug. 10 Purchases 36,900 (purchased prior to 2015) 30,700 Aug. 12 Freight on equipment purchased 720 Aug. 25 Installation costs 2,890 Nov. 10 Repairs 590Explanation / Answer
Balance of Assets at the end of the year:
Opening balance as on 1st January 2015= $141,500
Cost of equipment Sold = - $ 30,700
Balance of asset purchased on 2013= $ 110,800
Purchase cost during the year :
Purchase price= $36,900
Freight charges= $ 720
Installation cost =$ 2,890
Total cost of Asset= $ 40,510
Balance of Assets at the end of the year= $ 151,310
Assumption: Depreciation is to be charged for a full year on the ending balance in the asset account.
So based on the assumption the value of asset to compute the deprecation= $ 151,310
For the Asset purchased in 2013= 110800/8= $ 13850
For the Asset purchased in 2015= 151310/10= $ 15,131
Total Deprecation expenses = $ 28,981
2. Sum of the years digits Method:
Depreciable base x Remaining Useful Life/Sum of Years Digits
Depreciable Base= Cost –Salvage Value
For the Asset purchased in 2013= 110800-o= $ 110,800
For the Asset purchased in 2015= 151310-o= $ $ 151,310
Sum of years Digits = n(n+1)/2
= 10(10+1)/2=55
Deprecation Cost=
For the Asset purchased in 2013= 110800 x 8/55 = $ 16,116
For the Asset purchased in 2015= 151310 x 10/55= $ 27,510
Note: the repair expensed incurred on 10th nov will not be capitalised because its is a indirect expenses and charged to profit & loss account. Hence i have not included in the cost of asset.