A computer, printer, and copier were purchased for a total price of Php 250,000 on August 1, 2013. The company estimated that the equipment purchased will be effectively used for 5 years and after that, the equipment can be sold for Php20,000.
a. How much is the annual depreciation of the equipment?
b. How much depreciation will be recorded in the year 2013, assuming the company is maintaining a calendar period?
c. What percent of the cost of the equipment is the annual depreciation?
d. How much is the depreciation for the year 2014?
e. Prepare the adjusting journal entry for years 2013 and 2014?
a. How much is the annual depreciation of the equipment?
b. How much depreciation will be recorded in the year 2013, assuming the company is maintaining a calendar period?
c. What percent of the cost of the equipment is the annual depreciation?
d. How much is the depreciation for the year 2014?
e. Prepare the adjusting journal entry for years 2013 and 2014?
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Answer:
a. To compute for the annual depreciation of the equipment, we will use the straight-line method of depreciation:
Total cost - Salvage value / Useful life
(Php250,000 - Php20,000) / 5 years = Php46,000
Therefore, the annual depreciation of the equipment is Php46,000.
b. Since the equipment was purchased on August 1, 2013, the company will record depreciation expense only for the remaining months of the year. From August to December 2013, there are 5 months left.
Monthly depreciation = Annual depreciation / 12 months
Monthly depreciation = Php46,000 / 12 = Php3,833.33
Depreciation for 2013 = Monthly depreciation x Remaining months
Depreciation for 2013 = Php3,833.33 x 5 = Php19,166.67
Therefore, the depreciation to be recorded in 2013 is Php19,166.67.
c. To compute for the percent of the cost of the equipment that is the annual depreciation, we will use the formula:
Annual depreciation / Total cost x 100%
Php46,000 / Php250,000 x 100% = 18.4%
Therefore, the annual depreciation is 18.4% of the cost of the equipment.
d. The depreciation for the year 2014 is simply the annual depreciation of Php46,000.
e. The adjusting journal entry for 2013 is:
Depreciation Expense 19,166.67
Accumulated Depreciation - Equipment 19,166.67
The adjusting journal entry for 2014 is:
Depreciation Expense 46,000
Accumulated Depreciation - Equipment 46,000