Maurice Tutor

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Category > Accounting Posted 25 Aug 2017 My Price 11.00

Key Inc.,

Problem 8-7A Cost of Assets and the Effect on Depreciation

Early in its first year of business, Key Inc., a locksmith and security consultant, purchased new equipment. The acquisition included the following costs:

 

LO2•5

 

 

Purchase price

$168,000

Tax

16,500

Transportation

4,400

Setup*

1,100

Operating cost for first  year

26,400

*The equipment was adjusted to Key’s specific needs.

 

The bookkeeper recorded the asset Equipment at $216,400. Key used straight-line depreciation. The equipment was expected to last ten years with zero residual value.

Required

1.        Was $216,400 the proper amount to record for the acquisition cost? If not, explain how each expenditure should be recorded.

2.        How much depreciation did Key report on its income statement related to this equipment in Year 1? How much should have been reported?

3.        If Key’s income before the costs associated with the equipment is $55,000, what amount of income did Key report? What amount should it have reported? You can ignore income tax.

4.        Explain how Key should determine the amount to capitalize when recording an asset. What is the effect of Key’s error on the income statement and balance sheet?

 

Answers

Maurice Tutor
(5)
Status NEW Posted 25 Aug 2017 12:08 AM My Price 11.00

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