Question

On April 1, 2019, the KB Toy Company purchased equipment to be used in its manufacturing process. The equipment cost $59,800, has an ten-year useful life, and has no residual value. The company uses the straight-line depreciation method for all manufacturing equipment. On January $13,850 was spent the equipment and to add a feature that increased its operating efficiency. Of the total expenditure, $2,600 represented ordinary repairs and annual maintenance and $11,250 represented the cost of the new feature. In addition to increasing operating efficiency, the total useful life of the equipment was extended to 12 years.

Required:
Prepare journal entries for the depreciation for 2019 and 2020.

Answer 1

KB Toy Company

Journal Entries:

December 31, 2019:

Debit Depreciation expense $4,485

Credit Accumulated Depreciation $4,485

To record depreciation expense for the year.

December 31, 2020:

Debit Depreciation expense $5,547

Credit Accumulated Depreciation $5,547

To record depreciation expense for the year.

Step-by-step explanation:

a) Data and Calculations:

Cost of equipment on April 1, 2019 = $59,800

Estimated useful life = 10 years

Residual value = $0

Depreciable amount = $59,800

Annual depreciation expense = $5,980 ($59,800/10)

Depreciation expense, December 31, 2019 = $4,485 ($5,980 * 9/12)

January, 2020:

Net book value = $55,315 ($59,800 - $4,485)

Additional feature 11,250

New cost = $66,565

New estimated useful life = 12 years

Depreciation expense, December 31, 2020 = $5,547 ($66,565/12)

Repairs and maintenance expense = $2,600

December 31, 2019:

Depreciation expense $4,485

Accumulated Depreciation $4,485

December 31, 2020:

Depreciation expense $5,547

Accumulated Depreciation $5,547