Morris Inc. recorded the following transactions over the life of a piece of equipment purchased in 2018:

Question:

Jan. 1, 2018 Purchased equipment for $90,000 cash. The equipment was estimated to have a five year life and $5,000 salvage value and was to be depreciated using the straight-line method.

Dec. 31, 2018 Recorded depreciation expense for 2018.

Sept. 30, 2019 Undertook routine repairs costing $900.

Dec. 31, 2019 Recorded depreciation expense for 2019.

Jan. 1, 2020 Made an adjustment costing $2,500 to the equipment. It improved the quality of the output but did not affect the life and salvage value estimates.

Dec. 31, 2020 Recorded depreciation expense for 2020.

June 1, 2021 Incurred $850 cost to oil and clean the equipment.

Dec. 31, 2021 Recorded depreciation expense for 2021.

Jan. 1, 2022 Had the equipment completely overhauled at a cost of $9,000. The overhaul was estimated to extend the total life to seven years. The salvage value did not change.

Dec. 31, 2022 Recorded depreciation expense for 2022.

Oct. 1, 2023 Received and accepted an offer of $19,000 for the equipment.

Required

a. Use a horizontal statements model like the following one to show the effects of these transactions on the elements of the financial statements. Use + for increase, âˆ’ for decrease, and NA for not affected. The first event is recorded as an example.

b. Determine the amount of depreciation expense to be reported on the income statements for the years 2018 through 2022.
c. Determine the book value (cost âˆ’ accumulated depreciation) Morris will report on the balance sheets at the end of the years 2018 through 2022.
d. Determine the amount of the gain or loss Morris will report on the disposal of the equipment on October 1, 2023.

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...