On January 1, Year 3, Dartmouth Corporation paid $18,000 for major improvements on a two-year-old manufacturing machine. Although the expenditure did not change the expected useful life, it greatly increased the productivity of the machine. Prior to this transaction, the machine account in the general ledger was listed at $84,000, and the accumulated depreciation account was $20,000. Dartmouth uses the straight-line method. The estimated useful life was six years, and the estimated salvage value was $4,000.Required: a) Prepare the entry in general journal form for the January 1, Year 3 transaction.b) Immediately after the January 1, Year 3 transaction, what is the book value of the asset on Dartmouth books?c) Compute the depreciation for the machine for Year 3.
What will be an ideal response?
a)
b) 82,000
Book value = Cost of $84,000 ? Accumulated depreciation of $20,000 + Capital expenditure of $18,000 = $82,000
c) $19,500
Year 3 Depreciation = (Book value of $82,000 ? Estimated salvage value of $4,000) ÷ 4 years = $19,500
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