Q 8SE-4 - Horngren'S Financial And Managerial Accounting

Question

On October 1, Orlando Gold Exchange paid cash of $57,600 for computers that are expected to remain useful for three years. At the end of three years, the value of the computers is expected to be zero. Requirements 1. Calculate the amount of depreciation for the month of October using the straightline depreciation method. 2. Record the adjusting entry for depreciation on October 31. 3. Post the purchase of October 1 and the depreciation on October 31 to T-accounts for the following accounts: Computer Equipment, Accumulated Depreciation— Computer Equipment, and Depreciation Expense—Computer Equipment. Show their balances at October 31. 4. What is the computer equipment’s book value on October 31?

Step-by-Step Solution

Answer

The book value of computer equipment as on October 31 equals $56,000.

Step-by-Step Solution Step 1: Explanation on Book Value

Book value refers to the difference between original cost of asset and its accumulated depreciation.

Step 2: Calculation of Book Value

Book value is calculated as follows: 

$$\begin{gathered} \mathbf{BookValue}\mathbf{=}\mathbf{Cost}-\mathbf{AccumulatedDepreciation} \\ \mathbf{=}\mathbf{\$}\mathbf{57}\mathbf{,}\mathbf{600}-\mathbf{\$}\mathbf{1}\mathbf{,}\mathbf{600} \\ \mathbf{=}\mathbf{\$}\mathbf{56}\mathbf{,}\mathbf{000} \end{gathered}$$

Thus, book value equals $56,000.