Reference no: EM13916867
Eric's Electronics is moving into new facilities and must determine whether it should retain or replace various fixed assets. Complete the analysis of each of the following transactions.
1. On March 19, 2007 the company purchased a diagnostic system for $197,000. The system has a useful life of 10 years and a residual value of $15,000. The company depreciates this asset using Double Declining Balance. On July 18, 2016 the company has an offer to sell the system for $19,000. Show the journal entry that would record this transaction. What would you recommend that the company do and why?
2. On July 14, 2011 the company purchased a point of sale computer system for $82,000. The system has a useful life of 8 years and a residual value of $10,000. The company depreciates this asset using Straight Line. On April 3, 2016 the company has the option to trade this system for a newer model with an MSRP of $100,000. Eric's Electronics would pay $50,000 in addition to the trade. What would the journal entry be to record this transaction? What is your recommendation and why?
3. This year the company purchased a service vehicle on November 11, for $49,000. The vehicle has a useful life of 7 years or 140,000 miles with a residual value of $7,000. The company is unsure whether to use Straight Line or Units of Production Method. It is anticipated that the vehicle will be driven at least 30,000 miles per year. Which method of depreciation should Eric's Electronics use? Provide calculations to justify your position.
4.On May 24 of this year Eric's Electronics purchased the new facility on ½ acre of land for $250,000. Current land cost is $10,000 per acre. The company will use Straight Line Depreciation with a 25-year useful life and a residual value of $50,000. Record the journal entry for this purchase. Record the journal entry for the first year depreciation.
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