Problem 8-32B Recording continuing expenditures for plant assets
Tringle Inc. recorded the following transactions over the life of a piece of equipment purchased in Year 1:
Jan. 1, Year 1: Purchased the equipment for $38,000 cash. The equipment is estimated to have a five-year life and $3,000 salvage value and was to be depreciated using the straight-line method.
Dec. 31, Year 1: Recorded depreciation expense for Year 1.
May 5, Year 2: Undertook routine repairs costing $900.
Dec. 31, Year 2: Recorded depreciation expense for Year 2.
Jan. 1, Year 3: Made an adjustment costing $4,000 to the equipment. It improved the quality of the output but did not affect the life and salvage value estimates.
Dec. 31, Year 3: Recorded depreciation expense for Year 3.
Mar. 1, Year 4: Incurred $410 cost to oil and clean the equipment.
Dec. 31, Year 4: Recorded depreciation expense for Year 4.
Jan. 1, Year 5: Had the equipment completely overhauled at a cost of $9,000. The overhaul was estimated to extend the total life to seven years and revised the salvage value to $2,500.
Dec. 31, Year 5: Recorded depreciation expense for Year 5.
July 1, Year 6: Sold the equipment for $8,500 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.
b. Determine the amount of depreciation expense Tringle will report on the income statements for Year 1 through Year 5.
c. Determine the book value (cost − accumulated depreciation) Tringle will report on the balance sheets at the end of each year for Year 1 through Year 5.
d. Determine the amount of the gain or loss Tringle will report on the disposal of the equipment on July 1, Year 6.
e. Prepare the journal entry for the disposal of the equipment on July 1, Year 6.
Problem 8-33B Accounting for continuing expenditures
Delta Manufacturing paid $62,000 to purchase a computerized assembly machine on January 1, Year 1. The machine had an estimated life of eight years and a $2,000 salvage value. Delta’s financial condition as of January 1, Year 4, is shown in the following financial statements model. Delta uses the straight-line method for depreciation.
Delta Manufacturing made the following expenditures on the computerized assembly machine in Year 4:
- Jan. 2: Added an overdrive mechanism for $8,000 that would improve the overall quality of the performance of the machine but would not extend its life. The salvage value was revised to $2,500.
- Aug. 1: Performed routine maintenance, $1,250.
- Oct. 2: Replaced some computer chips (considered routine), $800.
- Dec. 31: Recognized Year 4 depreciation expense.
Required
a. Record the Year 4 transactions in a statements model like the preceding one.
b. Prepare journal entries for the Year 4 transactions
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