Reference no: EM132523738

Question - On January 2, 20x0, Chegal Ltd. purchased equipment for $100,000. Chegal had to spend an additional $10,000 for transportation and $15,000 for installation of the equipment. Assume that all of these were paid in cash. The equipment is expected to produce a total of 100,000 widgets over its life of 5 years. The residual value expected at the end of 5 years is $25,000. During 20x0, Chegal produced 19,000 widgets.

Required -

1. Prepare the journal entry to record the acquisition of the equipment on January 2, 20x0.

2. Prepare the journal entry at December 31, 20x0 to record the depreciation using the units-of-production method.

Items c, d and e do not require journal entries.

c. Assume Chegal uses the straight-line method of depreciation. Calculate the depreciation expense for the year ended December 31, 20x0.

d. Assume Chgal uses the diminishing balance method of depreciation at a rate of 40%. Calculate the depreciation expense for the year ended December 31, 20x0, 20x1, 20x2 and 20x3.

e. Assume that the straight-line method is used and that the equipment is disposed of on December 31, 20x2 for $52,000. Calculate the gain or loss on disposal on sale of equipment. Depreciation expense for the year ended December 31, 20x2 has been recorded.