Accounting for continuing expenditures
Vernon Manufacturing paid $58,000 to purchase a computerized assembly machine on January1. 2011. The machine had an estimated life of eight years and a $2,000 salvage value. Vernon's
financial condition as of January 1, 2014, is shown in the following financial statements model.
Vernon uses the straight-line method for depreciation. Assets = Equity Rev. - Exp. = Net Inc. Cash Flow | ||||||||
Cash +Book Value of Mach.= Com. Stk. + Ret. Earn. . | ||||||||
15,00 | 37,000 | 8,000 + | 44,000 | NA | - | NA | ' = NA | NA |
Vernon Manufacturing made the following expenditures on the computerized assembly
b. Depreciation Expense: $8,000 machine in 2014.
Jan. 2 | Added an overdrive mechanism for $6,000 that would improve the overall quality of |
| the performance of the machine but would not extend its life. The salvage value was |
| revised to $3,000. |
Aug. 1 | Performed routine maintenance. SI, 150. |
Oct. 2 | Replaced some computer chips (considered routine), $950. |
Dec, 31 | Recognized 2014 depreciation expense. |
Required
a. Record the 2014 transactions in a statements model like the preceding one.
b. Prepare journal entries for the 2014 transactions.
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