Question
PP&E EXPENDITURES SUBSEQUENT TO ACQUISITION A. On January 1, 2018, Sanderson Electric Company purchased equipment to be used in its manufacturing process. The equipment cost
PP&E EXPENDITURES SUBSEQUENT TO ACQUISITION A. On January 1, 2018, Sanderson Electric Company purchased equipment to be used in its manufacturing process. The equipment cost $60,000, has a six year useful life, no residual value, and will be depreciated using the straight-line method. On January 1, 2019, Sanderson spent $4,000 to repair the equipment and $11,000 to add a feature, which increased the equipments operating efficiency and its useful life. After adding the feature, Sanderson decided that the total useful life of the equipment should be increased from six years to 10 years.
1. Prepare a journal entry to record the costs associated with repairs and upgrades to the equipment on January 1, 2019.
2. Prepare a journal entry to record depreciation expense for 2019. (Hint: This problem involves a change in depreciation estimate, since the useful life of the asset changed on 1/1/19. You should start by calculating the carrying value of the equipment on the date of the change.)
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