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    Reds Co equipment account has a balance of $833,000 at 1/1/05... Compute balances and book values (various situations)

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    Reds Co equipment account has a balance of $833,000 at 1/1/05. The related accumulated depreciation account was $239,000 on 12/31/05. During 2005, the following post-acquisition events involving the equipment occurred:

    a) allocated cost of the equipment used during 2005 in a systematic manner $94,000

    b) equipment (A/D=$37,000; loss=$21,000) was sold for cash $84,000

    c) ordinary repairs were made on equipment $41,000

    d) parts, considered minor in nature, were replaced on the equipment as part of routine maintenance $28,000

    e) performed a major overhaul on equipment, increasing its life (book value not known) $139,000

    f) productivity of equipment (cost=$189,000; accumulated depreciation=$128,000) was increased by replacing outdated parts $228,000

    g) upgraded the equipment (cost=$61,000; book value=$15,000) with improved parts, thereby enhancing the quality of the output $87,000

    Compute the :
    1) 12/31/05 balance of the equipment
    2) 1/1/05 balance of accumulated depreciation
    3) book value of the equipment at 12/31/05
    4) change (amt and direction) in book value of equipment FYE 12/31/05

    CLUE must match!! Effect on income from the 7 events is a net $260,000 decrease

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    Solution Preview

    The way I generally like to solve problems like this is with t-accounts, so I formatted some in Excel (** see attachment **):


    Then, as I make journal entries (some of these clues give you info for at least a partial entry) I debit and credit the appropriate accounts. In places where I don't have a beginning balance, such as with Accumulated Depreciation, I leave the amount blank on the top line in the t-account.

    So the first couple of entries are pretty easy, and I filled in ...

    Solution Summary

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