Question

Wiater Company operates a small manufacturing facility. On January 1, 2018, an asset account for the...

Wiater Company operates a small manufacturing facility. On January 1, 2018, an asset account for the company showed the following balances:

Equipment $ 310,000
Accumulated Depreciation (beginning of the year) 141,000

During the first week of January 2018, the following cash expenditures were incurred for repairs and maintenance:

Routine maintenance and repairs on the equipment $ 3,650
Major overhaul of the equipment that improved efficiency 42,000

The equipment is being depreciated on a straight-line basis over an estimated life of 10 years with a $28,000 estimated residual value. The annual accounting period ends on December 31.

Required:

Indicate the effects (accounts, amounts, and + for increase and − for decrease) of the following two items on the accounting equation, using the headings shown below. (Enter any decreases to Assets, Liabilities or Stockholder's Equity with a minus sign.)

  1. The adjustment for depreciation made last year at the end of 2017.

  2. The two expenditures for repairs and maintenance during January 2018.

Homework Answers

Answer #1

Item

Assets

=

Liabilities

+

Stockholders’ Equity

2017

Accumulated Depreciation

($28,200)

Retained Earnings [Depreciation expense]

($28,200)

2018

Equipment

$42,000

Cash

($45,650)

Repair and Maintenance expense [Retained earnings]

($3,650)

  • 2017 Accumulated Depreciation = (Cost – Salvage) / Life
    = (310000 – 28000) / 10 years = $ 28,200
  • Normal repair maintenance of $ 3,650 is an expense.
    Major Overhaul of $ 42000 is to be capitalized.
    Cash will decrease by total repair cost = 3650 + 42000 = 45,650
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