Question

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.

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