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Chapter 3: 13Q (page 127)

Jay Hawk, maintenance supervisor for Boston Insurance Co., has purchased a riding lawnmower and accessories to be used in maintaining the ground and corporate headquarters. He has sent the following information to the accounting department.

Cost of Mover and Accessories

\(4,000

Date Purchased

7/1/2017

Estimated Useful Life

5 yrs

Monthly Salary of Groundskeeper

\)1,100

Salvage Value

\(0

Estimated Annual Fuel Cost

\)150

Compute the amount of depreciation expense(related to the mover and accessories) that should be reported on Boston’s December 31, 2017, Income Statement. Assume straight-line depreciation.

Short Answer

Expert verified

The depreciation expenses reported in the income statement are $800.

Step by step solution

01

Definition of Depreciation Expense

The depreciation expense is the reduction in the value of fixed assets as a result of effluxion of time, use in business wear and tear, etc. The cost of fixed assets is amortized over the useful life of the asset instead.

02

Depreciation Expense

Particulars

Amount $

Original Cost

$4,000

Salvage Value

$0

Useful Life

5 Yrs

Depreciation Expense (($4,000-$0) / 5)

$800

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Most popular questions from this chapter

How is the date of transition and the date of reporting determined in first-time adoption of IFRS?

Is it necessary that a trial balance be taken periodically? What purpose does it serve?

Mason Advertising was founded in January 2013. Presented below are adjusted and unadjusted trial balances as of December 31, 2017.


MASON ADVERTISINGTRIAL BALANCEDECEMBER 31, 2017


UnadjustedAdjusted

Dr.

Cr.

Dr.

Cr.

Cash

\( 11,000

\) 11,000

Accounts Receivable

20,000

23,500

Supplies

8,400

3,000

Prepaid Insurance

3,350

2,500

Equipment

60,000

60,000

Accumulated Depreciation—Equipment

\( 28,000

\) 33,000

Accounts Payable

5,000

5,000

Interest Payable

–0–

150

Notes Payable

5,000

5,000

Unearned Service Revenue

7,000

5,600

Salaries and Wages Payable

–0–

1,300

Common Stock

10,000

10,000

Retained Earnings

3,500

3,500

Service Revenue

58,600

63,500

Salaries and Wages Expense

10,000

11,300

Insurance Expense

850

Interest Expense

350

500

Depreciation Expense

5,000

Supplies Expense

5,400

Rent Expense

4,000

4,000

\(117,100

\)117,100

\(127,050

\)127,050

Instructions

  1. Journalize the annual adjusting entries that were made. (Omit explanations.)
  2. Prepare an income statement and a statement of retained earnings for the year ending December 31, 2017, and an unclassified balance sheet at December 31.
  3. Answer the following questions.
    1. If the note has been outstanding 3 months, what is the annual interest rate on that note?
    2. If the company paid $12,500 in salaries and wages in 2017, what was the balance in Salaries and Wages Payable on December 31, 2016?

What are closing entries and why are they necessary?

E3-6 (L03) (Adjusting Entries) Karen Weller, D.D.S., opened a dental practice on January 1, 2017. During the first month ofoperations, the following transactions occurred.1. Performed services for patients who had dental plan insurance. At January 31, \(750 of such services was performed but notyet billed to the insurance companies.2. Utility expenses incurred but not paid prior to January 31 totaled \)520.3. Purchased dental equipment on January 1 for \(80,000, paying \)20,000 in cash and signing a \(60,000, 3-year note payable.The equipment depreciates \)400 per month. Interest is \(500 per month.4. Purchased a one-year malpractice insurance policy on January 1 for \)12,000.5. Purchased \(1,600 of dental supplies. On January 31, determined that \)500 of supplies were on hand.InstructionsPrepare the adjusting entries on January 31. (Omit explanations.) Account titles are Accumulated Depreciation—Equipment,Depreciation Expense, Service Revenue, Accounts Receivable, Insurance Expense, Interest Expense, Interest Payable, PrepaidInsurance, Supplies, Supplies Expense, Utilities Expenses, and Accounts Payable.
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