Question

MODULE 1 EXTRA CREDIT (up to 15 points)

Chapter 4 (Ex 4-8) – Depreciation

On July 1, 2017, Dexter Corp. buys a computer system for $260,000 in cash. Assume that the computer is expected to have a four-year life and an estimated salvage value of $20,000 at the end of that time.

Required

1) Identify and analyze the transaction to record the purchase of the computer on July 1, 2017.

2) Compute the depreciable cost of the computer.

3) Using the straight-line method, compute the monthly depreciation.

4) Identify and analyze the adjustment to record depreciation at the end of July 2017.

5) Compute the computer's carrying value that will be shown on Dexter's balance sheet prepared on December 31, 2017

Answer 1

Solution Required 1: The Dexter Corp. shall record the transaction for purchase of computer equipment by debiting the Computer equipment and crediting the Cash. Credit Date July 1, 2017 Debit $260,000 Accounts Computer equipment Cash |(To record purchase of computer equipment) $260,000 I Required 2: Cost of the Computer equipment Estimated salvage value at the end of useful life Depreciable cost (Cost-estimated salvage) = $260,000 - $20,000 = $260,000 $20,000 $240,000 Required 3: Depreciable cost Estimated useful life $240,000 4 Years Depreciation charge (Yearly) - Depreciable cost / Estimated useful life = $240,000 / 4 Years = $60,000 Deprciation charge (monthly) = $60,000 / 12 months = $5,000 Required 4: The Dexter Corp. shall record the monthly depreciation expense for July month by debiting the Depreciation expense account and crediting the Accumulated depreciation account. Credit Debit $5,000 Date Accounts July 31, 2017 Depreciation expense Accumulated Depreciation (To record depreciation expense for July month) $5,000 | Required 5: Depreciation expense charged from July 2017 to December 2017 = $60,000 x 6/12 = $30,000 Accumulated depreciation as at December 2017 - $30,000 Carrying value as at December 31, 2017 = Cost - Accumulated Depreciation = $260,000 - $30,000 = $230,000