Chem-Lite, Inc., maintains its accounts on the basis of a fiscal year ending March 31. At March

Question:

Chem-Lite, Inc., maintains its accounts on the basis of a fiscal year ending March 31. At March 31, 20X1, the Equipment account in the general ledger appeared as shown below. The company uses straight-line depreciation, a 10-year life, and 10 percent for all its equipment. It is the company€™s policy to take a full year€™s depreciation on all additions to equipment occurring during the fiscal year, and you may treat this policy as a satisfactory one for the purpose of this problem. The company has recorded depreciation for the fiscal year ended March 31, 20X1.

Upon further investigation, you find the following contract dated December 1, 20X0, covering the acquisition of equipment:
List price ......... $30,000
5% sales tax ........ 1,500
Total ........... $31,500
Down payment ....... 10,500
Balance ......... 21,000
8% interest, 24 months ..... 3,360
Contract amount ..... $24,360

Prepare in good form, including full explanations, the adjusting entry (entries) you would propose as auditor of Chem-Lite, Inc., with respect to the equipment and related depreciation accounts at March 31, 20X1. (Assume that all amounts given arematerial.)

Salvage Value
Salvage value is the estimated book value of an asset after depreciation is complete, based on what a company expects to receive in exchange for the asset at the end of its useful life. As such, an asset’s estimated salvage value is an important...