Homework Answers
1) The renovation results in increase in economic life of machine, therefore the renovation cost will be capitalized to machine and also depreciated. journal entry to record renovation is shown as follows:-
Journal Entry (Amounts in $)
| Date | General Journal | Debit | Credit |
| Jan 1 | Machine | 15,800 | |
| Cash | 15,800 | ||
| (To record the renovation cost) |
2) Depreciation per year before renovation = (Old cost - Old Residual Value)/Old Useful Life
= ($30,600-$4,600)/5 yrs = $5,200 per year
Accumulated Depreciation at the end of year 1 = $10,400
Age of Machine = Accumulated Depreciation at the end of year 1/Depreciation per year
= $10,400/$5,200 = 2 years
Therefore the age of machine is 2 years.
3) Net Book value at the beginning of year = Cost - Accumulated Depreciation
= $30,600-$10,400 = $20,200
Remaining life of the machine = New Life - Age of Machine
= 8 yrs - 2 yrs = 6 yrs
New residual value = $6,600
Depreciation to be charged from year 3 = [(Book value+Renovation cost)-New Residual value]/Remaining life
= [($20,200+$15,800) - $6,600]/6 yrs
= (36,000 - 6,600)/6 yrs = $4,900 per year
Journal Entry to record depreciation (Amounts in $)
| Date | General Journal | Debit | Credit |
| Dec | Depreciation Expense | 4,900 | |
| Accumulated Depreciation | 4,900 | ||
| (To record the depreciation expense) |
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