Question

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

Equipment	$	165,000
Accumulated Depreciation (beginning of the year)		76,000

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

Routine maintenance and repairs on the equipment	$	2,150
Major overhaul of the equipment that improved efficiency		27,000

The equipment is being depreciated on a straight-line basis over an estimated life of 10 years with a $13,000 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.)

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

The two expenditures for repairs and maintenance during January 2018. (Record each entry separately.)

Answer 1

	Assets=			Liabilities +	Stockholders Equity
	Cash	Equipment -	Accumulated Depreciation	Liabilities	Retained Earnings
Balance, January 1, 2018		165,000	76,000
Routine Maintenance and Repairs	- 2,150				- 2,150
Major Overhaul of the Equipment	- 27,000	27,000
Depreciation Expense			20,600		- 20,600
Balance, December 31, 2018		192,000	96,600

Annual depreciation before overhaul = $ ( 165,000 - 13,000) / 10 = $ 15,200.

Expired life of the equipment = Accumulated Depreciation / Annual Depreciation = $ 76,000 / $ 15,200 = 5 years

Remaining useful life of the equipment = 10 years - 5 years = 5 years.

Depreciation expense for the year = Depreciation o the original equipment + Depreciation on capitalized major overhaul = $ 15,200 + ($ 27,000 / 5 years)= $ 20,600.