Question

Oki Company pays \(264,000 for equipment expected to last four years and have a \)29,000 salvage value. Prepare journal entries to record the following costs related to the equipment.

1. During the second year of the equipment’s life, \(22,000 cash is paid for a new component expected to increase the equipment’s productivity by 10% a year.
2. During the third year, \)6,250 cash is paid for normal repairs necessary to keep the equipment in good working order.
3. During the fourth year, $14,870 is paid for repairs expected to increase the useful life of the equipment from four to five years.

Short answer

1. The equipment is debited with $22,000.
2. The repair expenses are debited $6,250.
3. The equipment is debited with $14,870.

Step-by-step solution

Journal entries

1. For betterment

Year 2	Equipment	$22,000
	Cash		$22,000
	Record betterment

Journal entries

2. For ordinary repairs

Year 3	Repair expense	$6,250
	Cash		$6,250
	Record ordinary repairs

Journal entries

3. For extraordinary repairs

Year 4	Equipment	$14,870
	Cash		$14,870
	Record extraordinary