Question
1. On 5 September 2018, Norris Corporation purchased a computer equipment for $100,000, paid $20,000 cash and signed a 6% two-year notes payable for the
1. On 5 September 2018, Norris Corporation purchased a computer equipment for $100,000, paid $20,000 cash and signed a 6% two-year notes payable for the remaining balance. The equipment was expected to be used for 4 years with a residual value of $10,000. Straight-line depreciation method is used. Depreciation for fractional years is recorded to the nearest full month. The financial year-end date is 31 December.
On 25 February 2020, the company spent $25,000 to completely overhaul the equipment. The management believes the estimated useful life of the equipment will be extended for 3 years more with residual value of $6,000, with effect on 25 February 2020.
Required:
Calculate the depreciation expense of the computer equipment for the year of 2020. Show your workings. (Round ALL answers to 2 decimal places.) (3 marks)
2. Marvel Company purchased motor vehicle costing $1,200,000 on 15 September 2017. The motor vehicle has an estimated useful life of 5 years and residual value of $200,000. Straight-line depreciation method is used. Half-year convention is adopted. On 5 March 2020, the company sold the motor vehicle for $400,000 cash. The company adjusts its accounts annually with the year-end at 31 December.
Required:
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(a) Prepare the journal entries to update the depreciation before disposal in 2020; (2 marks)
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(b) Prepare the journal entries on 5 March 2020 regarding to the disposal. (4 marks)
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