Question

Pete's Propellers Company showed the following information in its Property, Plant, and Equipment Subledger regarding Machine #5027 Machine #5027 Depreciation Method* Date of purchase Jan. 12/18 Jan. 12/18 Jan. 12/18 Component Single metal housing Motor Blade SL Est. Residual Est. Life $7,000 15 yrs 2,000 10 yrs 1,2005 yrs Cost $ 46,000 32,000 11,400 $ 89,400 DDB SL *SL = Straight-line; DDB = Double-declining-balance On January 7, 2020, the machine blade cracked and it was replaced with a new one costing $11,600 purchased for cash (the old blade was scrapped). The new blade had an estimated residual value of $1,500 and an estimated life of five years and would continue to be depreciated using the straight-line method. During 2020, it was determined that the useful life on the metal housing should be increased to a total of 18 years instead of 15 years and that the residual value should be increased to $9,200.

Answer 1

1. Journal Entry to record the purchase of new blade.

Date	General Journal	Debit	Credit
Jan 07,2020	New Blade A/c Dr	$ 11,600
	Cash A/c		$ 11,600
	(For purchase of new blade)
Jan 07,2020	Accumulated Depreciation A/c Dr	$ 4080
	Loss on asset scrapped A/c Dr	$ 7320
	Old Blade A/c		$ 11400
	(Being the old blade was Scrapped)

2. Total Depreciation Expense:

a.Single Metal Housing:

Depreciation under SLM Method = (Cost of the asset - Estimated Residual Value)/Estimated Useful life

= ($ 46,000-$ 7,200)/15 Years

= $ 2,587 per year

Book Value as on Jan 01,2020 = Cost of the asset - Depreciation for 2 years

= $ 46,000 - ($ 2587*2)

= $ 40,826

Depreciation for the year 2020 = (Book Value as on Jan 01, 2020 - revised Estimated Residual Value) / (Revised

estimed useful life - years completed)

= ($ 40,826 - $ 9,200) / (18-2)

= $ 1,977

b. Motor:

Depreciation under double declining Method = 2 X SL Rate X Book Value of the Asset

SL Rate = ($ 32,000/10 years)/$ 32, 000

= $ 3,200 / $ 32,000

= 10%

Book Value of the asset for 2018 = $ 32,000

Depreciation for the Year 2018 = $ 32,000*2*10% = $ 6,400

Depreciation for the year 2019 = ($ 32,000 - $ 6,400)*2*10% = $ 5,120

Depreciation for the Year 2020 = ($ 32,000 - $ 6,400 - $5,120)*2*10% = $ 4,096

C. New Blade:

Depreciation under SLM Method = (Cost of the asset - Estimated Residual Value)/Estimated Useful life

= ($ 11,600-$ 1,500)/5 Years

= $ 2,020

Total Depreciation Expense = $1,977+$4,096+$2,020 = $8,093

Answer 2

Where did the 7320 come from, like the calculation for Loss on asset A/c Dr Jan 7th 2020 of 1. Journal Entry to record the purchase of new blade?