Question

Due by midnight would appreciate help because I dont see where I am messing up

Wiater Company operates a small manufacturing facility. On January 1, 2018, an asset account for the company showed the following balances: Equipment Accumulated Depreciation (beginning of the year) $200,000 62,000 During the first week of January 2018, the following expenditures were incurred for repairs and maintenance: Routine maintenance and repairs on the equipment Major overhaul of the equipment that improved efficiency $ 2,450 27,000 The equipment is being depreciated on a straight-line basis over an estimated life of 15 years with a $14,000 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.)

Answer 1

Solution

Wiater Company

Effects of following two items on the accounting equation:

	Accounting Equation
Transaction	Assets		=	Liabilities		+	Stockholders' Equity
Maintenance and repairs	Cash	($2,450)	=	NA		+	($2,450)
Overhaul on equipment	Equipment	$27,000	=	NA		+	NA
	Cash	($27,000)	=	NA		+	NA

Note: the repairs and maintenance is of regular nature and hence and a revenue expenditure. Revenue expenses reduce stockholders’ equity.

The major overhaul would improve the performance and life of equipment. Hence, the same is treated as capital expenditure and added to equipment balance.

Computations:

1. Depreciation on equipment –

Cost = 200,000

Residual value = $14,000

Useful life = 15 years

Annual depreciation = (200,000 – 14,000)/15 = $12,400

Book value of equipment = cost – accumulated depreciation

= 200,000 – 62,000 = $138,000

Add: major overhaul cost = $27,000

Book value of equipment after overhaul = $165,000

Estimated remaining life = 15 years – (62,000/12,400) = 10 years

Depreciation on overhaul 27,000/10 = $2,700

Total depreciation expense for the year = 12,400 + 2,700 = $15,100

The entries would be –      

Date	Account Titles and explanation	Debit	Credit
Jan	Repairs and Maintenance Expense	$2,450
	Cash		$2,450
	(To record payment for repairs and maintenance on equipment)
Jan	Equipment	$27,000
	Cash		$27,000
	(To record payment of major overhaul)
Dec-31	Depreciation Expense - Equipment	$15,100
	Accumulated Depreciation - Equipment		$15,100
	(To record depreciation expense)