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Chapter 9: Q5SE (page 527)

Calculating partial-year depreciation

On February 28, 2017, Rural Tech Support purchased a copy machine for \(53,400. Rural Tech Support expects the machine to last for six years and have a residual value of \)3,000. Compute depreciation expense on the machine for the year ended December 31, 2017, using the straight-line method.

Short Answer

Expert verified

Depreciation expenses of the business entity are$7,000.

Step by step solution

01

Definition of Straight-Line Method

The deprecation method that reports the same depreciation over each year's useful asset life is known as the straight-line method.

02

Depreciation using straight-line method

Depreciation=Cost-ResidualvalueUsefullife×1012=$53,400-$3,0006×1012=$7,000

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Most popular questions from this chapter

During 2018, Lora Company completed the following transactions:

Jan. 1 Traded in old office equipment with book value of \(55,000 (cost of \)129,000 and accumulated depreciation of \(74,000) for new equipment. Lora also paid \)55,000 in cash. Fair value of new equipment is \(116,000. Assume the exchange had commercial substance.

Apr. 1 Sold equipment that cost \)12,000 (accumulated depreciation of \(1,000 through December 31 of the preceding year). Lora received \)7,100 cash from the sale of the equipment. Depreciation is computed on a straightline basis. The equipment has a five-year useful life and a residual value of \(0.

Dec. 31 Recorded depreciation as follows:

Office equipment is depreciated using the double-declining-balance method over four years with a \)7,000 residual value.

Record the transactions in the journal of Lora Company.

Maxim Company reported beginning and ending total assets of \(140,000 and \)160,000, respectively. Its net sales revenue for the year was $240,000. What was Maxim’s asset turnover ratio?

Whitney Plumb Associates surveys American eating habits. The company’s accounts include Land, Buildings, Office Equipment, and Communication Equipment, with a separate Accumulated Depreciation account for each asset. During 2018, Whitney Plumb completed the following transactions:

Jan. 1 Purchased office equipment, \(117,000. Paid \)77,000 cash and financed the remainder with a note payable.

Apr. 1 Acquired land and communication equipment in a lump-sum purchase. Total cost was \(350,000 paid in cash. An independent appraisal valued the land at \)275,625 and the communication equipment at \(91,875.

Sep. 1 Sold a building that cost \)520,000 (accumulated depreciation of \(285,000 through December 31 of the preceding year). Whitney Plumb received \)390,000 cash from the sale of the building. Depreciation is computed on a straight-line basis. The building has a 40-year useful life and a residual value of \(25,000.

Dec. 31 Recorded depreciation as follows:

Communication equipment is depreciated by the straight-line method over a five-year life with zero residual value. Office equipment is depreciated using the double-declining-balance method over five years with a \)2,000 residual value.

Record the transactions in the journal of Whitney Plumb Associates.

On October 31, 2018, Alternative Landscapes discarded equipment that had a cost of \(26,920. Accumulated Depreciation as of December 31, 2017, was \)25,000. Assume annual depreciation on the equipment is $1,920. Journalize the partial-year depreciation expense and disposal of the equipment.

Accounting for depletion of natural resources Ajax Petroleum holds huge reserves of oil assets. Assume that at the end of 2018, Ajax Petroleum’s cost of oil reserves totaled $27,000,000, representing 3,000,000 barrels of oil.

Requirements

  1. Which method does Ajax Petroleum use to compute depletion?
  2. Suppose Ajax Petroleum removed and sold 500,000 barrels of oil during 2019. Journalize depletion expense for 2019.
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