Question

# PP&amp;E EXPENDITURES SUBSEQUENT TO ACQUISITION A. On January 1, 2018, Sanderson Electric Company purchased equipment to...

PP&amp;E EXPENDITURES SUBSEQUENT TO ACQUISITION
A. On January 1, 2018, Sanderson Electric Company purchased equipment to be used in its manufacturing process. The equipment cost \$60,000, has a six year useful life, no
residual value, and will be depreciated using the straight-line method. On January 1, 2019, Sanderson spent \$4,000 to repair the equipment and \$11,000 to add a feature,
which increased the equipment’s operating efficiency and its useful life. After adding the feature, Sanderson decided that the total useful life of the equipment should be increased
from six years to 10 years.

1. Prepare a journal entry to record the costs associated with repairs and upgrades to the equipment on January 1, 2019.

2. Prepare a journal entry to record depreciation expense for 2019. (Hint: This problem involves a change in depreciation estimate, since the useful life of the asset changed
on 1/1/19. You should start by calculating the carrying value of the equipment on the date of the change.)

 Req1. Journal entries S.no. Accounts title and explanations Debit \$ Credit \$ a. Repairs and maintenance expense 4000 Cash account 4000 (for repairs and maintenance expense incurred) b. Equipment 11000 Cash account 11000 (for upgrading the equipment) Req 2. Cost of equipment 60000 Annual dep for 2018 (60000/6) 10000 Book value on 01.01.19 50000 Add: upgrading cost 11000 Total value 61000 Divide: Residual life (10-1) 9 Depreciation for 2019 onwards 6778 Journal entries S.no. Accounts title and explanations Debit \$ Credit \$ 31.12.19 Depreciation expense 6778 Accumulated dep-Equipment 6778 (for depreciation expense)

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