Question

> Continuing Problem P10-43 Calculating and journalizing partial-year depreciation This problem continues the Canyon Canoe Company situation from Chapter 9. Amber Wilson is continuing to review business practices. Currently, she is reviewing the company's property, plant, and equipment and has gathered the following information: Estimated Monthly Acquisition Estimated Residual Depreciation Depreciation Date Asset Life Cost Expense Value Method* Canoes 4 years Nov. 3, 2018 $ 4,800 $ 100 $ 0 Land Dec. 1, 2018 85,000 Dec. 1, 2018 Building 35,000 5 years 500 5,000 Dec. 2, 2018 Canoes 7,200 150 4 years Computer Mar. 2, 2019 3,600 3 years 300 DDB Office Furniture Mar. 3, 2019 3,000 5 years 600 SL *SL - Straight-line; DDB = Double-declining balance Requirements 1. Calculate the amount of monthly depreciation expense for the computer and office furniture for 2019. 2. For each asset, determine the book value as of December 31, 2018. Then, calcu- late the depreciation expense for the first six months of 2019 and the book value as of June 30, 2019. 3. Prepare a partial balance sheet showing Property, Plant, and Equipment as of June 30, 2019.

Answer 1

ANSWER

As per the given question,

Depreciation is a method of allocation of the cost of an asset over its useful life. There are three methods of calculating depreciation, () Straight-line method (ii) Units-of-production method and (iii) Double-declining-balance method.

Under the double-declining-balance method, the decreasing book value of the asset is multiplied with a constant percentage which is twice the rate of straight-line depreciation. Calculate the depreciation on computer as follows: Double-declining-balance depreciation rate = 2 * 7 Useful life = 2 x - 3 = 0.67 Therefore, double-declining-balance depreciation rate is 0.67.

Calculate double-declining-balance depreciation as follows: (Cost - Accumulated depreciation) Double-declining-balance depreciation = x Double-declining-balance depreciation rate x time period = (($3,600 – 0 )x 0.67) 70 = $2,000 Total depreciation Depreciation per month = Number of months $2,000 10 = $200 Therefore, monthly depreciation expense on computer is S200

Under the straight-line method of depreciation, equal amount of depreciation is allocated each year. Calculate depreciation on office furniture as follows: Cost - Residual Value Straight-line depreciation = Useful life $3,000 - $600 = $480 Total depreciation for the year Depreciation per month = 12 Months $480 12 = $40 Therefore, monthly depreciation expense on office furniture is $40

Book value of an asset is equal to its cost less the accumulated depreciation on it. Calculate book value of the assets as follows: Asset Cost Canoes Building Canoes Computer Office Furniture Total $4.800 S35,000 S7.200 $3,600 $3,000 Accumulated Depreciation Book Value as Depreciation expense for Accumulated Depreciation Book Value as on till Dec 31, 2018 on Dec 31, 2018 first six months of 2019 till June 30, 2019 June 30, 2019 (Number of months (Number of months x Monthly depreciation) Monthly depreciation) A-B D= B +C A- $200 (2 x $100) S4.600 S600 (6 X S100) S800 $4,000 S500 (1 x SS00) $34,500 $3,000 (6 x S500) $3.500 S31,500 S150 (1 x S150) $7,050 S900 (6 * $150) $1,050 S6,150 $800 (4 x 5200) S800 $2,800 S160 (4 x 540) S160 $2,840 $6,310 Therefore, total accumulated depreciation till June 30, 2019 is $6,310.

Prepare partial balance sheet showing Property, Plant and Equipment as of June 30, 2019, as follows: Property, Plant, and Equipment on the Balance Sheet of CC (Company) (June 30, 2019) Property, Plant, and Equipment Land $85,000 Canoes $12,000 Less: Accumulated Depreciation ($1,850) $10,150 Building $35,000 Less: Accumulated Depreciation ($3,500) $31,500 Computer $3,600 Less: Accumulated Depreciation ($800) $2,800 Office Furniture $3,000 Less: Accumulated Depreciation ($160) $2,840 Property, Plant and Equipment, Net $132,290 Therefore, value of property, plant, and equipment on 30, June 2019 is $132,290.

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