23) On January 1, 2011, Tiler Company purchased equipment that cost $30,000. The equipment has an estimated useful life of 6 years and an estimated salvage value of $3,000.
Required:
1. Using the straight-line method, complete the chart below:
Year
|
Depreciation expense for the year ended Dec. 31
|
Book value at Dec. 31
|
2011
|
$
|
$
|
2012
|
$
|
$
|
2013
|
$
|
$
|
2. Explain why long-term assets must be depreciated.
3. Explain why land is
NOT
depreciated while assets such as equipment are depreciated.
24) Describe the impact on the financial statements of buying a piece of factory equipment for cash, using it, and then selling it for cash.
On the balance sheet:
On the income statement:
On the statement of cash flows:
25) A client has asked you to review the following situations related to long-term assets:
a. Ana, an inexperienced accountant, has calculated depreciation expense of $14,000 for the year ended December 31, 2009, on an asset that was acquired on March 1, 2009. The asset cost $150,000, has an estimated salvage value of $10,000 and a 10-year estimated useful life. Ana used the straight-line method to depreciate the asset.
b. Ana also calculated depreciation expense of $2,000 on a patent that has a historical cost of $5,000 and a 5-year estimated useful life. The patent has been used all year.
c. A client asked Ana if he could use the double-declining balance method to depreciate assets for the external financial statements. Ana said, “No,” because she is pretty sure that the double-declining balance method applies only to tax reporting.
d. Ana determined that the cost of equipment purchased in January was $18,000. The equipment had an invoice price of $11,000, $1,500 of shipping charges, $1,000 of installation costs, and $1,500 of testing, moving, and handling costs. During the first month the equipment was owned, it used $2,000 of power and required a $1,000 tune-up to keep it running. Ana entered $18,000 as the original cost of the equipment.
e. Ana calculated a $4,000 gain on an asset that was sold on the last day of the year. The asset had an original cost of $120,000, an estimated useful life of 8 years and a $10,000 salvage value. The asset was depreciated using the straight-line method and had been owned for 6 full years. The asset was sold for $30,000 cash.
Required:
For each of these items, decide if the accounting treatment described is correct or not.
If the treatment is correct, write "Correct". If the current treatment is incorrect, provide the correct answer.