On December 31, 2012, before the books were closed, the management and accountants of Madrasa Inc. made the following determinations about three depreciable assets.
1. Depreciable asset A was purchased January 2, 2009. It originally cost $500,000 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 2012, 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. Depreciable asset B was purchased January 3, 2008. It originally cost $243,000 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 salvage value. In 2012, the decision was made to shorten thetotallife of this asset to 9 years and to estimate the salvage value at $3,200.
3. Depreciable asset C was purchased January 5, 2008. The asset’s original cost was $154,900, and this amount was entirely expensed in 2008. This particular asset has a 10-year useful life and no salvage value. The straight-line method was chosen for depreciation purposes.
1. Income in 2012 before depreciation expense amounted to $405,000.
2. Depreciation expense on assets other than A, B, and C totaled $50,100 in 2012.
3. Income in 2011 was reported at $349,000.
4. Ignore allincometax effects.
5. 129,200 shares of common stock were outstanding in 2011 and 2012.
Prepare all necessary entries in 2012 to record these determinations. (Credit account titles are automatically indented when amount is entered. Do not indent manually.)
No. Account Titles and Explanation Debit Credit
(To correct equipment expensed.)
(To record depreciation.)
Accumulated Depreciation – Buildings
Accumulated Depreciation – Equipment
Accumulated Depreciation – Machinery
Allowance for Doubtful Accounts
Bad Debt Expense
Construction in Process
Cost of Goods Sold
Dealer’s Fund Reserve
Deferred Tax Liability
Due to Customer
Equity Investments (Available-for-sale)
Equity Investments (Equity Method)
Fair Value Adjustment
Fair Value Adjustment (Available-for-Sale)
Gain on Disposal of Plant Assets
Gain on Sale of Plant Assets
Inventory on Consignment
Inventory Over and Short
Loss Due to Market Decline of Inventory
Maintenance and Repairs Expense
Revenue from Investment
Salaries and Wages Expense
Salaries and Wages Payable
Sales Commission Expense
Sales Commission Expense Payable
Sales Commissions Payable
Sales Tax Expense
Sales Taxes Payable
Unearned Rent Revenue
Unrealized Holding Gain or Loss – Equity
Unrealized Holding Gain or Loss – Income