Question
Morris Incorporated recorded the following transactions over the life of a piece of equipment purchased in Year 1: January 1, Year 1 Purchased equipment for
Morris Incorporated recorded the following transactions over the life of a piece of equipment purchased in Year 1: January 1, Year 1 Purchased equipment for $105,000 cash. The equipment was estimated to have a five-year life and $4,000 salvage value and was to be depreciated using the straight-line method. December 31, Year 1 Recorded depreciation expense for Year 1. September 30, Year 2 Undertook routine repairs costing $900. December 31, Year 2 Recorded depreciation expense for Year 2. January 1, Year 3 Made an adjustment costing $4,200 to the equipment. It improved the quality of the output but did not affect the life and salvage value estimates. December 31, Year 3 Recorded depreciation expense for Year 3. June 1, Year 4 Incurred $2,350 cost to oil and clean the equipment. December 31, Year 4 Recorded depreciation expense for Year 4. January 1, Year 5 Had the equipment completely overhauled at a cost of $12,000. The overhaul was estimated to extend the total life to seven years. The salvage value did not change. December 31, Year 5 Recorded depreciation expense for Year 5. October 1, Year 6 Received and accepted an offer of $34,000 for the equipment. Required Use a horizontal statements model to show the effects of these transactions on the elements of the financial statements. Use + for increase, for decrease, +/ for both increase and decrease, and leave blank for not affected. The first event is recorded as an example. Determine the amount of depreciation expense to be reported on the income statements for Year 1 through Year 6. Determine the book value (cost accumulated depreciation) Morris will report on the balance sheets at the end of each year for Year 1 through Year 6. Determine the amount of the gain or loss Morris will report on the disposal of the equipment on October 1, Year 6. Prepare the journal entry for the disposal of the equipment on October 1, Year 6.
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