Accounting Ch. 9

Partial Year Depreciation

When a plant asset is acquired during the year, depreciation is calculated for the fraction of the year the asset is owned

Recording the Disposal in the Journal Book Value of 62,000 Sold for 60,000 Loss of 2,000 Journal Entry?

9/30 Debit: Cash 60,000 Accum. Dep. 38,000 Loss On Disposal 2,000 Credit: Machine 100,000

Goodwill

-occurs when one company buys another company -only purchased goodwill is an intangible asset -goodwill is not amortized. It is tested each year to determine if there has been any impairment in carrying value

Partial Year Example Calculate the straight-line depreciation on Dec 31, 2004 for equipment purchased on June 30th 2004. The equipment cost $75,000 has useful life of 10 years and an estimated salvage value of $5,000 Depreciation Expense?

1) (75,000 - 5,000) / 10 years = $7000 for all of 2004 2) $7,000 * (6/12) = $3,500

Double-Declining Example Equipment purchased 50,000 salvage value of 5000 5 years useful life

1) Normal Rate = 100% / 5 years = 20% 2) Double Rate = 2 * 20% = 40% 3) Dep Exp= 40% * 50,000 = $20,000 for 2004 2005 Depreciation: 40% * (50,000 - 20,000) = $12,000 2006 Depreciation: 40% * (30,000 - 12,000) = $7,200

Units of Production Depreciation Example On December 31, 2004, equipment was purchased for $50,000 cash. The equipment is expected to produce 100,000 units during its useful life and has an estimated salvage value of $5,000 If 22,000 units were produced in 2004, what is the amount of depreciation expense?

Dep/Unit= (50,000 - 5,000) / 100,000 =$0.45 per unit Dep Exp. = $0.45 * 22,000 = $9,900

Selling Plant Asset Example On Sept 30th 2004 Evans Company sells a machine that originally cost $100,000 for $60,000 cash. The machine was placed in service on January 1, 2000. IT was depreciated using the straight-line method with an estimated salvage value of $20,000 and a useful life of 10 years. What's the depreciation expense and the corresponding journal entry?

Depreciation: (100,000 - 20,000) / 10 yrs = $8,000 Depreciation to Sept 30, 2004 $8,000 * (9/12) = $6,000 9/30 Debit: Depreciation Exp 6000 Credit: Accum. Dep 6000 Cost: 100,000 -Accu. Dep: (38,000) <-4yrs*8000+6000 =Book Value 62,000

Double-Declining Depreciation

Step 1) Normal Straight line rate Step 2) Double Declining rate= 2 * Straight Line Rate Step 3) Depreciation Expense = Double Declining rate * Beginning value

Units of Production Depreciation Method

Step 1: Depreciation per unit = (Cost - Salvage Value)/ Total Units of Production Step 2: Depreciation Expense = Depreciation per unit * # of Units produced