Question

Hulme Company operates a small manufacturing facility as a supplement to its regular service activities. At the beginning of 2020, an asset account for the company showed the following balances: Manufacturing equipment Accumulated depreciation through 2019 $120,000 63,000 During 2020, the following expenditures were incurred for the equipment: Major overhaul of the equipment on January 2, 2020, that improved efficiency Routine maintenance and repairs on the equipment $18,000 2,000 The equipment is being depreciated on a straight-line basis over an estimated life of 15 years with a $15,000 estimated residual value. The annual accounting period ends on December 31. Required: Prepare the adjusting entry that should be made by Hulme Company at the end of 2020 for depreciation of the manufacturing equipment, assuming no change in the original estimated life or residual value. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Round your answers to the nearest whole dollar amount.) View transaction list Journal entry worksheet Record the adjusting entry for depreciation of the manufacturing equipment, assuming no changes in the original estimated life or residual value. Note: Enter debits before credits

Answer 1

Original cost of equipment $120000

Residual value $15000

Useful life of equipment 15 years

Existing annual depreciation=(cost-residual value)/useful life

=(120000-15000)/15 = $7000

At the beginning of 2020, accumulated depreciation=63000

Number of years equipment already used=63000/7000 = 9 years

Remaining useful life=15-9=6 years

Book value at the beginning of 2020=120000-63000= $57000

Add: Major overhaul of the equipment that improved efficiency =$18000

Revised book value= $57000+$18000=$75000

Revised annual depreciation=($75000-$15000)/6 =$10000

Journal entry:

Depreciation on equipment Dr $10000(debit)

To Accumulated depreciation $10000(credit)

(To record depreciation for the year 2020)

Notes: An expenditure that improves the efficiency of the asset is capitalised.

Routine maintenance and repair of the asset are expensed in the year they are incurred.