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Waiter company operates a small manufacturing facility. On January 2021, an asset account for the company showed the following balances . Equipment $230,000 , Accumulated depreciation ( beginning of the year ) $ 108000. During the first week of January 2021, the following cash expenditure were incurred for repairs and maintenance. Routine maintenance and repair on equipment $2,250. Major overhaul of the equipment that improved efficiency $28,000. The equipment is being depreciated on straight line basis over an estimated useful life of 20 years with a residual value of $14,000. The annual accounting period ends on December 31. What will be the adjusted depreciation expense on December 31 2021

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AmbitiousLizzy

Answer and Explanation:

To calculate the adjusted depreciation expense on December 31, 2021, we need to first determine the net book value of the equipment at the beginning of the year, account for the repairs and maintenance expenses, and then calculate the depreciation expense for the year.

1. Net Book Value at the beginning of the year:

Net Book Value = Equipment - Accumulated Depreciation

= $230,000 - $108,000

= $122,000

2. Repairs and maintenance expenses:

Total repairs and maintenance expenses = Routine maintenance + Major overhaul

= $2,250 + $28,000

= $30,250

3. Adjusted Book Value after repairs and maintenance:

Adjusted Book Value = Net Book Value + Repairs and maintenance

= $122,000 + $30,250

= $152,250

4. Depreciation for the year:

Depreciation expense = (Adjusted Book Value - Residual Value) / Useful life

= ($152,250 - $14,000) / 20

= $138,250 / 20

= $6,912.50

Therefore, the adjusted depreciation expense on December 31, 2021, is $6,912.50.

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