13Q - Intermediate Accounting (Kieso)

Question

Jay Hawk, maintenance supervisor for Boston Insurance Co., has purchased a riding lawnmower and accessories to be used in maintaining the ground and corporate headquarters. He has sent the following information to the accounting department.

Cost of Mover and Accessories	\(4,000	Date Purchased	7/1/2017
Estimated Useful Life	5 yrs	Monthly Salary of Groundskeeper	\)1,100
Salvage Value	\(0	Estimated Annual Fuel Cost	\)150

 

Compute the amount of depreciation expense(related to the mover and accessories) that should be reported on Boston’s December 31, 2017, Income Statement. Assume straight-line depreciation.

Step-by-Step Solution

Answer

The depreciation expenses reported in the income statement are $800.

Step 1: Definition of Depreciation Expense

The depreciation expense is the reduction in the value of fixed assets as a result of effluxion of time, use in business wear and tear, etc. The cost of fixed assets is amortized over the useful life of the asset instead.

Step 2: Depreciation Expense

Particulars	Amount $
Original Cost	$4,000
Salvage Value	$0
Useful Life	5 Yrs
Depreciation Expense (($4,000-$0) / 5)	$800