Question

This problem continues the Canyon Canoe Company situation from Chapter 8. Amber and Zack Wilson are continuing to review business practices. Currently, theyare reviewing the company’s property, plant, and equipment and have gathered thefollowing information:

Asset	Acquisition Date	Cost	Estimated Life	Estimated Residual value	Depreciation Method	Monthly Depreciation Expense
Canoes	Nov. 3, 2018	\(4,800	4 Years	\) 0	SL	$100
Land	Dec 1, 2018	85,000			n/a
Building	Dec 1, 2018	35,000	5 Years	5,000	SL	500
Canoes	Dec 2, 2018	7,200	4 Years	0	SL	150
Computer	Mar. 2, 2019	3,600	3 Years	300	DDB
Office Furniture	MAR. 3, 2019	3,000	5 Years	600	SL

*SL = Straight@line; DDB = Double@declining@balance

Requirements

1. Calculate the amount of monthly depreciation expense for the computer andoffice furniture for 2019.

2. For each asset, determine the book value as of December 31, 2018. Then, calculatethe depreciation expense for the first six months of 2019 and the book valueas of June 30, 2019.

3. Prepare a partial balance sheet showing Property, Plant, and Equipment as ofJune 30, 2019.

Short answer

The monthly depreciation expense on computers and furniture is $200and$40 respectively.

Step-by-step solution

Meaning of Depreciation

Depreciation refers to theexpense charged to the income statement yearly due to a decline in the value of the fixed asset.

Monthly depreciation expense for computer and office equipment

Calculation of depreciation on computer by double declining method

$\begin{array}{c}\text{Depreciation\hspace{0.17em}rate}=\frac{100\%}{3}\times 2\\ =66.67\%\end{array}$

The depreciation rate is 66.67%

$\begin{array}{c}MonthlyDepreciationexpenseforcomputer=Cost\times Depreciationrate\times \frac{1}{12}\\ =\$3,600\times 66.67\%\times \frac{1}{12}\\ =\$200\end{array}$

Calculation of depreciation on office furniture by straight line method

$\begin{array}{c}MonthlyDepreciationexpenseforofficefurniture=\frac{Cost-ResidualValue}{EstimatedLife}\times \frac{1}{No.ofmonthsinyear}\\ =\frac{\$3,000-\$600}{5}\times \frac{1}{12}\\ =\$40\end{array}$

Calculation of book value as of 31 Dec 2018

Asset (A)	Acquisition date	Cost (C)	Months up to Dec, 31 2018(B)	Monthly depreciation (D)	Depreciation Up to 31 Dec 2018 (E = DXB)	Book Value (F = C-E)
Canoes	Nov. 3 2018	4,800	2	$100	$200	4,600
Land	Dec 1. 2018	85,000	1	-	-	85,000
Building	Dec 1. 2018	35,000	1	$500	$500	34,500
Canoes	Dec 2. 2018	7,200	1	$150	$150	7,050

Depreciation expense for the first 6 months and book value on June 30 2019

Asset (A)	Book Value (C)	Monthly depreciation (D)	Depreciation for the 6 monthsE	Book Value (F = C-E) ($)
Canoes	4,600	$100	$600	4,000
Land	85,000	-	-	85,000
Building	34,500	$500	$3,000	31,500
Canoes	7,050	$150	$900	6,150
Computer	3,600	$200	$800	2,800
Office Furniture	3,000	$40	$160	2,840

Partial Balance sheet as on June 30, 2019

Balance Sheet Extract as on 30, June 2019
Property, Plant, and Equipment	Amount ($)	Amount ($)
Land		$85,000
Building	$35,000
Less: Accumulated Depreciation – building	(3,500)	31,500
Canoes	12,000
Less: Accumulated Depreciation – Canoes	(1,850)	10,150
Computer	3,600
Less: Accumulated Depreciation - Computer	(733)	2,867
Office Furniture	3,000
Less: Accumulated Depreciation – Office Furniture	(160)	2,840
Property, Plant, and Equipment, Net		$ 132,357