Reference no: EM132756636
Questions -
Q1. On 2 June 2016, Snow Company purchased an equipment for $125,000 with an estimated useful of 5 years and an estimated residual value $8,000. On 31 May 2020, the Company sold the equipment for $30,000 cash. The Company uses straight-line depreciation method with half-year convention and adjusts its accounts annually with the year-end on 31 December.
Required - Prepare the following journal entries (show your workings):
(a) to update the depreciation expense for 2020.
(b) to dispose the said equipment.
Q2. On 10 January 2017, Rainy Company purchased $1,000,000 equipment, with estimated useful life of 120 months and no residual value. Straight-line method was adopted. For partial years, depreciation in the year of acquisition/upgrade/disposal is recorded to the nearest whole month. The Company records annual depreciation expense at the year-end date, 31 December.
On 28 June 2019, the company spent $100,000 to upgrade the above equipment in order to enhance the capacity. The company paid $5,000 to employ a technician to upgrade the equipment and paid $1,000 interest to finance the upgrade. The company decided to extend the estimated useful life to 150 months and revise the estimated residual value to $75,000 on the same date.
Required -
(a) Calculate the book value of the equipment after the upgrade. Show your workings.
(b) Calculate the annual depreciation expense of the equipment in 2019. Show your workings.