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	$	132,000
Accumulated depreciation through 2019		76,000

During 2020, the following expenditures were incurred for the equipment:

Major overhaul of the equipment on January 2, 2020, that improved efficiency	$	18,000
Routine maintenance and repairs on the equipment		2,600

The equipment is being depreciated on a straight-line basis over an estimated life of 15 years with a $18,000 estimated residual value. The annual accounting period ends on December 31.

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.

Answer 1

Date	General Journal	Debit	Credit
December 31,2020	Depreciation expense	11200
	Accumulated Depreciation-Equipment		11200

Workings:
Cost of Equipment	132000
Less: Residual value	18000
Depreciable cost	114000
Divide by useful life	15
Annual Depreciation	7600
Years of Equipment used	10	=76000/7600
Cost of Equipment	150000	=132000+18000
Less: Accumulated depreciation through 2019	76000
Book value at the beginning of 2020	74000
Less: Residual value	18000
Remaining Depreciable cost	56000
Divide by remaining useful life	5	=15-10
Annual Depreciation	11200