USA: +1 (725) 712-1730
USA: +1 (725) 712-1730

Question & Answer: On December 31, 2017, before the books were closed, the management and accountants of Bonita Inc. made the…..

Problem 22-6

On December 31, 2017, before the books were closed, the management and accountants of Bonita Inc. made the following determinations about three pieces of equipment.

1. Equipment A was purchased January 2, 2014. It originally cost $543,000 and, for depreciation purposes, the straight-line method was originally chosen. The asset was originally expected to be useful for 10 years and have a zero salvage value. In 2017, the decision was made to change the depreciation method from straight-line to sum-of-the-years’-digits, and the estimates relating to useful life and salvage value remained unchanged.
2. Equipment B was purchased January 3, 2013. It originally cost $177,000 and, for depreciation purposes, the straight-line method was chosen. The asset was originally expected to be useful for 15 years and have a zero residual value. In 2017, the decision was made to shorten the total life of this asset to 9 years and to estimate the residual value at $2,800.
3. Equipment C was purchased January 5, 2013. The asset’s original cost was $158,500, and this amount was entirely expensed in 2013. This particular asset has a 10-year useful life and no residual value. The straight-line method was chosen for depreciation purposes.

Additional data:

1. Income in 2017 before depreciation expense amounted to $396,200.
2. Depreciation expense on assets other than A, B, and C totaled $55,000 in 2017.
3. Income in 2016 was reported at $369,900.
4. Ignore all income tax effects.
5. 99,200 shares of common stock were outstanding in 2016 and 2017.Problem 22-6

On December 31, 2017, before the books were closed, the management and accountants of Bonita Inc. made the following determinations about three pieces of equipment.

1. Equipment A was purchased January 2, 2014. It originally cost $543,000 and, for depreciation purposes, the straight-line method was originally chosen. The asset was originally expected to be useful for 10 years and have a zero salvage value. In 2017, the decision was made to change the depreciation method from straight-line to sum-of-the-years’-digits, and the estimates relating to useful life and salvage value remained unchanged.
2. Equipment B was purchased January 3, 2013. It originally cost $177,000 and, for depreciation purposes, the straight-line method was chosen. The asset was originally expected to be useful for 15 years and have a zero residual value. In 2017, the decision was made to shorten the total life of this asset to 9 years and to estimate the residual value at $2,800.
3. Equipment C was purchased January 5, 2013. The asset’s original cost was $158,500, and this amount was entirely expensed in 2013. This particular asset has a 10-year useful life and no residual value. The straight-line method was chosen for depreciation purposes.

Additional data:

1. Income in 2017 before depreciation expense amounted to $396,200.
2. Depreciation expense on assets other than A, B, and C totaled $55,000 in 2017.
3. Income in 2016 was reported at $369,900.
4. Ignore all income tax effects.
5. 99,200 shares of common stock were outstanding in 2016 and 2017.Problem 22-6

On December 31, 2017, before the books were closed, the management and accountants of Bonita Inc. made the following determinations about three pieces of equipment.

1. Equipment A was purchased January 2, 2014. It originally cost $543,000 and, for depreciation purposes, the straight-line method was originally chosen. The asset was originally expected to be useful for 10 years and have a zero salvage value. In 2017, the decision was made to change the depreciation method from straight-line to sum-of-the-years’-digits, and the estimates relating to useful life and salvage value remained unchanged.
2. Equipment B was purchased January 3, 2013. It originally cost $177,000 and, for depreciation purposes, the straight-line method was chosen. The asset was originally expected to be useful for 15 years and have a zero residual value. In 2017, the decision was made to shorten the total life of this asset to 9 years and to estimate the residual value at $2,800.
3. Equipment C was purchased January 5, 2013. The asset’s original cost was $158,500, and this amount was entirely expensed in 2013. This particular asset has a 10-year useful life and no residual value. The straight-line method was chosen for depreciation purposes.

Additional data:

1. Income in 2017 before depreciation expense amounted to $396,200.
2. Depreciation expense on assets other than A, B, and C totaled $55,000 in 2017.
3. Income in 2016 was reported at $369,900.
4. Ignore all income tax effects.
5. 99,200 shares of common stock were outstanding in 2016 and 2017.

a. Prepare all necessary entries in 2017 to record these determinations

b. Prepare comparative retained earnings statements for Bonita Inc. for 2016 and 2017. The company had retained earnings of $198,900 at December 31, 2015.

Expert Answer

Answer a.
Journal Entry
Date Particulars Dr. Amt. Cr. Amt.
1 Depreciation Expenses                               Dr.            95,025
   To Accumulated Dep. – Equipment A            95,025
2 Depreciation Expenses                               Dr.            25,400
   To Accumulated Dep. – Equipment B            25,400
3(a) Equipment C                                                    Dr.          158,500
   To Accumulated Dep. – Equiment C            63,400
   To Retained Earnings            95,100
3(b) Depreciation Expenses                               Dr.            15,850
   To Accumulated Dep. – Equipment C            15,850
Equipment A:
Cost of Equipment A          543,000
Less: Depreaciation – $54,300 X 3 Years          162,900
Book Value as on Jan 1, 2017          380,100
Depreciation Under Straight Line Method = $543,000 / 10 Years = $54,300 per annum
Depreciation under Sum of Digit Method for 2017 = $380,100 X 7/28 = $95,025
Equipment B:
Cost of Equipment B          177,000
Accumulated Dep. – $11,800 X 4 Years            47,200
Book Value as on Jan 1, 2017          129,800
Depreciation Under Straight Line Method = $177,000 / 15 Years = $11,800 per annum
Depreciation for 2017 = ($129,800 – $2,800 (Salvage Value)) / 5 Years (Remaining Life)
Depreciation for 2017 = $25,400 per annum
Answer b.
Comparitive Retained Earnings Statement
2017 2016
Retained Earnings , Jan 1, 2016          198,500
Add: Error in Recording Equipment C – $158,500 – ($15,850 X 3)          110,950
Retained Earnings , Jan 1, 2016 – Adjusted          663,500          309,450
Add: Net Income          189,075          354,050
Retained Earnings , Dec 31          852,575          663,500
2016
Net Income          369,900
Less: Depreciation – Equipment C          (15,850)
Net Income – Adjusted -2016          354,050
2017
Net Income before Depreciation          396,200
Less: Depreciation:          (15,850)
Equipment A          (95,025)
Equipment B          (25,400)
Equipment C          (15,850)
on Other Assets          (55,000)
Net Income – Adjusted -2017          189,075
Still stressed from student homework?
Get quality assistance from academic writers!
Order now