Stacey Company operates a small manufacturing facility as a supplement to its regular service activities. At the beginning of 2012, an asset account for the company showed the following balances:

\begin{tabular}{lr}

Manufacturing equipment & \(\$ 80,000\) \\

Accumulated depreciation through 2011 & 55,000 \\

\hline

\end{tabular}

In early January 2012, the following expenditures were incurred for repairs and maintenance:

\begin{tabular}{ll}

Routine maintenance and repairs on the equipment & \begin{tabular}{c}

\(\$ 850\) \\

Major overhaul of the equipment

\end{tabular} \\

10,500

\end{tabular}

The equipment is being depreciated on a straight-line basis over an estimated life of 15 years, with a \(\$ 5,000\) estimated residual value. The company's fiscal year ends on December 31.

Required:

1. Prepare the adjusting entry to record the depreciation of the manufacturing equipment on December 31, 2011.

2. Prepare the journal entries to record the two expenditures that occurred during 2012.

3. Prepare the adjusting entry at December 31,2012 , to record the depreciation of the manufacturing equipment, assuming no change in the estimated life or residual value of the equipment. Show computations.

4. Indicate the accounts affected, amount, and direction (+ for increase and - for decrease) of the effects of the journal entries you prepared for (1) to (3) on the accounting question. Use the following headings:

Transcribed Image Text:

Date Assets = Liabilities + Shareholders' Equity