Question

Morris Inc recorded the following transactions over the life of a piece of equipment purchased in Yeart Jan. 1, Year 1 Purchased equipment for 500,000 cash. The equipment was estimated to have a five-year life and 35,000 salvage value and was to be depreciated using the straight line method. Dec. 31, Year 1 Recorded depreciation expense for Year 1. Sept. 30, Year 2 Undertook routine repairs costing $900. Dec. 31, Year 2 Recorded depreciation expense for Year 2. Jan. 1, Year 3 Made an adjustment costing $2,500 to the equipment. It improved the quality of the output but did not affect the life and salvage value estimates. Dec. 31, Year 3 Recorded depreciation expense for Year 3. Jun. 1, Year 4 Incurred $850 cost to oil and clean the equipment. Dec. 31, Year 4 Recorded depreciation expense for Year 4. Jan. 1, Year 5 Had the equipment completely overhauled at a cost of $9,000. The overhaul was estimated to extend the total life to seven years. The salvage value did not change. Dec. 31, Year 5 Recorded depreciation expense for Year 5. Oct. 1, Year 6 Received and accepted an offer of $19,000 for the equipment Required a. Use a horizontal statements model like the following one to show the net effects of these transactions on the elements of the financial statements. The first event is recorded as an example. (Use for increase or for decrease. In the Cash Flow column. indicate whether the item is an operating activity (OA), an investing activity (1A), or a financing activity (FA). Columns for events that have no effect on any of the elements should be left blank.) b. Determine the amount of depreciation expense to be reported on the income statements for the years Year 1 through Year 6. c. Determine the book value (cost-accumulated depreciation) Morris will report on the balance sheets at the end of the years Year 1 through Year 5. d. Determine the amount of the gain or loss Morris will report on the disposal of the equipment on October 1, Year 6.

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faCuiaent A MORRIS INNC toai 20nkal Statemant Modal Casbflou Liabi lityEquityAet Jniom Dat BAsset JA Janlya t- Dec 31,Yl OA Sep 30,ys 2 Oec 31,42 Janolya t Dec 31, 3 OA Dec 31, Ya IA Dec 21,

IA Out 14 (Receipt) Outlysk ( daprauiatien) (psaii sal) + +

Depsiaciaioo calculation Puachase psita Les Saluagevalua $90000 44 $ S000 Net assel 8 S000 Syeass le fasset Depseiation Net asset Life of assat $1000 95000 S years JanYa 3 Adjustment with cost Note The cost e$asoD must be addad to fixedassat afhur than expense as itîncoeaspdhequality Output compare to paaviously assessed standasd Puachase paito Less Depaaciatien yal Depaaiation ya 2 -G13000). 90000 $5L00D కికంం $58500 (Soo0) Add Ravaluation. Assel value Less Satvage value ం0 net asset

Life ef assel CRemaining) yeass Depaaciation (Net assals $$19833 $3500 3 yeas Life Majos ovesbaul io Year s Thig cost must be ad dad to tixed a3set and dapsaciation thasgd aues the period focreased life Asset puacbasa paice Lese: Depraiation Year 90000 వీకంం Add Ravaluation Less Depaeciation. Year 3 2833) ।३33) 9000 Yeasr 4 Add Ovesbaul cost F.31824 Lesa Salvage value $26834 1+2yea Net assaf Life ef assat (Ricnaining taddition). - $8945 Depsociation yeas S (rvet asaat/ ife)

$29.49 Depaeciation yeas $608 Depaecial yearb gmorths a months P945X Sold on Out 1, Hene 9 months Suomary fdlapsaciation & Book Valo Parchase! Addition Depsauation Book Value Year opening book value D AIB- Year 9000D 3000 to00 Year 2 3000 S6060 S6000 1833 40C67 year 4 40667 2833 2383 Year s 9ooo A395 Yeor6 2889. G708 Solel

Raquisament D Detesmination 8f psoftE Sale er Coss oN Book value io begining $a2889 -($6709) pearb Less Depaaiation year $16181 Net balanu Sala valu 19000 eton sal Csale value $22 19 net balanu కీవి Psef On sala