Question

Dan’s Desserts acquired six new ice cream freezers for their warehouse on April 1, 2019. The...

Dan’s Desserts acquired six new ice cream freezers for their warehouse on April 1, 2019. The freezers cost a total of $60,750 plus $2,500 in sales taxes, for which Dan’s Desserts issued a check. The company estimates the freezers will have a value of $11,000 when the company finishes using them in 5 years. Round to the nearest dollar.

  1. Which accounts will be affected by the accounting entry for the acquisition of the freezers on April 1, 2019?
  1. Calculate the amount of straight-line depreciation Dan’s Desserts will record each year (rounded to the nearest dollar).

  1. How much depreciation will be recorded for the year ended December 31, 2019? Which accounts will be affected?

  1. Complete the following table:

Depreciation Expense on Income Statement

Asset Cost

Accumulated Depreciation

Net Book Value on Balance Sheet

2019

2020

2021

2022

  1. What will be the net book value of the freezers on March 31, 2024 (the end of the useful life)?

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Answer #1

All expenses directly related to acquisition of asset should be included in cost of asset.Sales tax expenses has to be allowed to capitalise the cost of asset, so sales tax becomes part of cost of asset.

Over the time asset will be depereciated along with cost of asset sales tax also will be eventually charged to expense in the form of depreciation.

Cost of asset.

Jounal entry on 1st April,2019.

Debit Fixed Asset (Freezers a/c) $63,250

Credit Cash/Creditor $63,250.

Being purchase of asset has been capitalised.

Straight line depreciation method.

Straight line depreciation is a simple method for calculating how much a particular fixed asset depreciates over a period of time.

Depreciation amount = ( Cost of asset - Salvage value ) / no of yeras.

Depreciation amount = ($63,250 - $11,000)/5

Depreciation amount = $10,450

Depreciation amount record every year is $10,450.

Depreciation table.

Depreciation at the end of 2019.

Depreciation amount recorded for the year 2019 is $10,450

Jounal entry for depreciation

Debit Depreciation $10,450

Credit Fixed asset/ Freezer $10,450

Net book value of freezers at the end of March 31, 2024 $11,000

  

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