Question

On July 1, 2014, Browning Company purchased equipment for use in its manufacturing process. The equipment cost $504,000, has a useful life of 7 years, and has no salvage value. The company uses straight-line depreciation for this type of equipment. On January 1, 2016, $75,000 was spent to repair the equipment and add a new feature, which increased operating efficiency. $21,000 was ordinary repairs and maintenance and the remainder represented the cost of the new feature. This work also extended the useful life of the equipment two extra years.

Prepare the following journal entries

-Depreciation for 2014

-Depreciation for 2015

-The event that took place on 1-1-2016

-Depreciation for 2016

Answer 1

	Depreciation per year = ( Cost of Asset - Salvage Value )/ useful life
			= (504000 - 0 )/7
			72000
	Depreciation for 2014
		Depreciation Expense Dr.	36000		(For 6 months only)
		To Accumulated Depreciation		36000	(For 6 months only)
	Depreciation for 2015
		Depreciation Expense Dr.	72000
		To Accumulated Depreciation		72000
	Entry on 01-01-2016
		Repair and Miantenance	21000
		To Cash		21000
		Equipment A/c Dr.	54000
		To Cash		54000
		Caluclation of Revised Depreciation
		= [ (Written Down Value + New Addition ) - (Salvage Value) ] / Remaining Useful life
		= [ (504000 - 36000 - 72000) + (54000)   - (0) ] / (7-1.5) + (2) ]
		= [ (504000 - 36000 - 72000) + (54000)   - (0) ] / (7-1.5) + (2) ]
		= (450000)/7.5
		60000
	Deprecition for 2016
		Depreciation Expense Dr.	60000
		To Accumulated Depreciation		60000