Question
On January 2, 20x0, Lungal Ltd. purchased equipment for $100,000. Lungal had to spend an additional $10,000 for transportation and $15,000 for installation of the
On January 2, 20x0, Lungal Ltd. purchased equipment for $100,000. Lungal had to spend an additional $10,000 for transportation and $15,000 for installation of the equipment. Assume that all of these were paid in cash. The equipment is expected to produce a total of 100,000 widgets over its life of 5 years. The residual value expected at the end of 5 years is $25,000. During 20x0, Lungal produced 19,000 widgets.
Required -
- Prepare the journal entry to record the acquisition of the equipment on January 2, 20x0.
- Prepare the journal entry at December 31, 20x0 to record the depreciation using the units-
- of-production method.
Items c, d and e do not require journal entries
c. Assume Lungal uses the straight-line method of depreciation. Calculate the depreciation expense for the year ended December 31, 20x0.
- Assume Lungal uses the diminishing balance method of depreciation at a rate of 40%. Calculate the depreciation expense for the year ended December 31, 20x0, 20x1, 20x2 and 20x3.
- Assume that the straight-line method is used and that the equipment is disposed of on December 31, 20x2 for $52,000. Calculate the gain or loss on disposal on sale of equipment. Depreciation expense for the year ended December 31, 20x2 has been recorded.
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