Question

Wiater Company operates a small manufacturing facility. On January 1, 2018, an asset account for the company showed the following balances:

Equipment	$	305,000
Accumulated Depreciation (beginning of the year)		192,000

During the first week of January 2018, the following expenditures were incurred for repairs and maintenance:

Routine maintenance and repairs on the equipment	$	2,950
Major overhaul of the equipment that improved efficiency		35,000

The equipment is being depreciated on a straight-line basis over an estimated life of 15 years with a $17,000 estimated residual value. The annual accounting period ends on December 31.

Required:

Indicate the effects (accounts, amounts, and + for increase and − for decrease) of the following two items on the accounting equation, using the headings shown below. (Enter any decreases to Assets, Liabilities or Stockholder's Equity with a minus sign.)

1. The adjustment for depreciation made last year at the end of 2017.

2. The two expenditures for repairs and maintenance during January 2018. (Record each entry separately.)

Answer 1

Assets Liabilities + Stockholders 'Equity + Retained Earnings $19,200 + Retained Earnings $2,950 + 1 Equipment 2a Cash 2b Cash Equipment $19,200 = -$2,950 = -$35,000 = $35,000 = + + Note (i) Cost $3,05,000 Salvage Value $17,000 Useful Life 15 Straight Line Depreciation = (Cost - Salvage Value)/useful life Straight Line Depreciation $19,200 [$305000-$17000)/15 Note (ii) The expenditure incurred on the assets which increases the efficiency of the Assets, than the expenditure incurred will be capitalised