Question

1. After a meeting with upper management Mr. Robot Ltd. (Mr. Robot) concluded they would need a new super computer to reduce their production time and cost of the company's current production process. On January 2016 they purchased a new super computer for $150,000. The computer was estimated to have a six-year useful life and a residual value of $15,000. In February 2020, Mr. Robot paid $98,000 to overhaul the entire computer system. The overhaul upgraded to the latest technology and extended its useful life by an additional two years. In May 2020, the computer broke down and required servicing to get it to operate properly. The servicing cost $10,000. Mr. Robot's year-end is December 31. The estimated residual value remained $15,000, unchanged throughout the period.

Required:

1. Provide the journal entry to record the purchase of the equipment in January 2016.
2. How would you account for the overhaul done in February 2020? Explain your reasoning.
3. How would you account for the servicing done in May 2020? Explain.
4. What effect would the events in (b) and (c) have on Mr. Robot's depreciation expense?
5. What would be the depreciation expense in each year of the equipment's life, assuming that Mr. Robot uses straight-line depreciation?

Answer 1

Solved first four as per HomeworkLib policy. Please post remaining separately:

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Part a
Jan 2016	Equipment	$   150,000
	Cash		$   150,000
	(To record purchase of equipment)
Part b	It will be added to equipment cost and will increase total cost of equipment.
	Since this overhaul upgraded to the latest technology and extended its useful life by an additional two years
Part c	This will be shown as Repair expense and not be added to equipment cost.
	Since this is repair of broked down machine.
Part d	(b) will increase depreciation Expense
	c) will have no impact on depreciation