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Chapter 11: Q11-2BE (page 584)

Lockard Company purchased machinery on January 1, 2017, for \(80,000. The machinery is estimated to have a salvage value of \)8,000 after a useful life of 8 years. (a) Compute 2017 depreciation expense using the straight-line method. (b) Compute 2017 depreciation expense using the straight-line method assuming the machinery was purchased on September 1, 2017.

Short Answer

Expert verified

Answer

  1. Depreciation expense = $9,000.
  2. Depreciation expense = $3,000.

Step by step solution

01

Step-by-Step SolutionStep 1: Meaning of Straight-Line Depreciation

Straight-line depreciation is the simplest way to calculate depreciation expense. There is uniform depreciation from year to year and it recognizes less depreciationat the beginning compared to other depreciation methods.

02

(a) Computing depreciation for 2017

顿别辫谤别肠颈补迟颈辞苍鈥塭虫辫别苍蝉别=颁辞蝉迟鈥塷蹿鈥塧蝉蝉别迟鈭�厂补濒惫补驳别鈥塿补濒耻别鲍蝉别蹿耻濒鈥塴颈蹿别=$80,000鈭�$8,0008=$9,000

03

(b) Computing depreciation for 2017

顿别辫谤别肠颈补迟颈辞苍鈥塭虫辫别苍蝉别=颁辞蝉迟鈥塷蹿鈥塧蝉蝉别迟鈭�厂补濒惫补驳别鈥塿补濒耻别鲍蝉别蹿耻濒鈥塴颈蹿别脳狈耻尘产别谤鈥塷蹿鈥尘辞苍迟丑惭辞苍迟丑鈥塱苍鈥塧鈥墆别补谤=$80,000鈭�$8,0008脳412=$3,000

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Most popular questions from this chapter

Charlie Parker, president of Spinners Company, has recently noted that depreciation increases cash provided by operations and therefore depreciation is a good source of funds. Do you agree? Discuss.

Silverman Company purchased machinery for \(162,000 on January 1, 2017. It is estimated that the machinery will have a useful life of 20 years, salvage value of \)15,000, production of 84,000 units, and working hours of 42,000. During 2017, the company uses the machinery for 14,300 hours, and the machinery produces 20,000 units. Compute depreciation under the straight-line, units-of-output, working hours, sum-of-the-years鈥�-digits, and double-declining-balance methods.

Falcetto Company acquired equipment on January 1, 2016, for \(12,000. Falcetto elects to value this class of equipment using revaluation accounting. This equipment is being depreciated on a straight-line basis over its 6-year useful life. There is no residual value at the end of the 6-year period. The appraised value of the equipment approximates the carrying amount at December 31, 2016 and 2018. On December 31, 2017, the fair value of the equipment is determined to be \)7,000.

Instructions

  1. Prepare the journal entries for 2016 related to the equipment.
  2. Prepare the journal entries for 2017 related to the equipment.

Determine the amount of depreciation expense that Falcetto will record on the equipment in 2018.

McDonald鈥檚 Corporation

McDonald鈥檚 is the largest and best-known global food-service retailer, with more than 32,000 restaurants in 118 countries. On any day, McDonald鈥檚 serves approximately 1 percent of the world鈥檚 population. The following is information related to McDonald鈥檚 property and equipment.

McDonald鈥檚 Corporation

Summary of Significant Accounting Policies Section

Property and Equipment. Property and equipment are stated at cost, with depreciation and amortization provided using the straight-line method over the following estimated useful lives: buildings鈥攗p to 40years; leasehold improvements鈥攖he lesser of useful lives of assets or lease terms, which generally include option periods; and equipment鈥攖hree to 12 years.

[In the notes to the financial statements:]

Property and Equipment

Net property and equipment consisted of:

December 31

(In millions) 2014 2013

Land \( 5,788.4 \)5,849.3

Buildings and improvements on owned land 14,322.4 14,715.6

Buildings and improvements on leased land 13,284.0 13,825.2

Equipment, signs and seating 5,113.8 5,376.8

Other 617.5 588.7

39,126.1 40,355.6

Accumulated depreciation and amortization (14,568.6) (14,608.3)

Net property and equipment \(24,557.5 \)25,747.3

Depreciation and amortization expense for property and equipment was

(in millions): 2014鈥擻(1,539.3; 2013鈥擻)1,498.8; 2012鈥擻(1,402.2.

[In its 6-year summary, McDonald鈥檚 provides the following information.]

(in millions) 2014 2012 2013

Cash provided by operations \)6,370 \(7,121 \)6,966

Capital expenditures 2,583 2,825 3,049

Instructions

  1. What method of depreciation does McDonald鈥檚 use?
  2. Does depreciation and amortization expense cause cash flow from operations to increase? Explain.
  3. What does the schedule of cash flow measures indicate?

(Depreciation鈥擱eplacement, Change in Estimate) Greg Maddox Company constructed a building at a cost of \(2,200,000 and occupied it beginning in January 1998. It was estimated at that time that its life would be 40 years, with no salvage value.

In January 2018, a new roof was installed at a cost of \)300,000, and it was estimated then that the building would have a useful life of 25 years from that date. The cost of the old roof was $160,000.

Instructions

  1. What amount of depreciation should have been charged annually from the years 1998 to 2017? (Assume straight-line depreciation.)
  2. What entry should be made in 2018 to record the replacement of the roof?
  3. Prepare the entry in January 2018 to record the revision in the estimated life of the building if necessary.
  4. What amount of depreciation should be charged for the year 2018?
See all solutions

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