Recording continuing expenditures for plant assets
Big Sky Inc. recorded the following transactions over the life of a piece of equipment purchased in 2011:
Jan. 1. 2011 | Purchased the equipment for $36,000 cash. The equipment is estimated to have a five-year life and $6,000 salvage value and was to be depreciated using the |
| using the straight-line method |
| straight-line method. |
Dec. 31,2011 | Recorded depreciation expense for 2011. |
May 5, 2012 | Undertook routine repairs costing $750. |
Dec. 31,2012 | Recorded depreciation expense for 2012. |
Jan. 1,2013 | Made an adjustment costing $3,000 to the equipment. It improved the quality of |
| the output but did not affect the life estimate. |
Dec. 31,2013 | Recorded depreciation expense for 2013. |
Mar. 1, 2014 | Incurred $320 cost to oil and clean the equipment. |
Dec. 31.2014 | Recorded depreciation expense for 2014. |
Jan. 1,2015 | Had the equipment completely overhauled at a cost of $7,500. The overhaul was |
| estimated to extend the total life to seven years and revised the salvage value to |
| $4,000. |
Dec. 31, 2015 | Recorded depreciation expense for 2015. |
July 1,2016 | Sold the equipment for $9,000 cash. |
Required
a. Use a horizontal statements model like the following one to show the effects of these transactions on the elements of the financial statements. Use + for increase, - for decrease, and NA for not affected. The first event is recorded as an example.
Date | Assets= Liabilities + Equity | Wet Inc. | Cash Flow |
Jan.1,2011 | + - NA NA | NA | - IA |
b. Determine amount of depreciation expense Big Sky will report on the income statements for the years 2011 through 2015.
c. Determine the book value (cost - accumulated depreciation) Big Sky will report on the balance sheets at the end of the years 2011 through 2015.
d. Determine the amount of the gain or loss Big Sky will report on the disposal of the equipment on July 1, 2016.
e. Prepare the journal entry for the disposal of the equipment on July 1, 2016.
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