Recording continuing expenditures for plant assets
Harris Inc. recorded the following transactions over the life of a piece of equipment purchased in 2011:
Jan. | 1.2011 | Purchased equipment for $80,000 cash. The equipment was estimated to have a five-year life and $5,000 salvage value and was to be depreciated using the straight-line method. |
Dec. | 31,2011 | Recorded depreciation expense for 2011. |
Sept. | 30, 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. |
June | 1,2014 | Incurred $620 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 $8,000. The overhaul was estimated to extend the total life to seven years. |
Dec. | 31,2015 | Recorded depreciation expense for 2015. |
Oct. | 1,2016 | Received and accepted an offer of $18,000 for the equipment. |
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.
b. Determine the amount of depreciation expense to be reported on the income statements for the years 2011 through 2015.
c. Determine the book value (cost - accumulated depreciation) Harris will report on the balance sheets at the end of the years 2011 through 2016.
d. Determine the amount of the gain or loss Harris will report on the disposal of the equipment on October 1, 2016.
e. Prepare the journal entry for the disposal of the equipment on October 1, 2016.
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