Chap 6 Outline

# To depreciation an assets a business needs to know 3

• Notes
• 5

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To depreciation an assets a business needs to know 3 things: 1. 2. 3. Other key term = Book value Example: On January 1, 2011, Fulsom Corporation purchased a machine for \$50,000. Fulsom paid shipping expenses of \$500 as well as installation costs of \$1,200. Fulsom estim- ated the machine would have a useful life of five years and an estimated salvage value of \$3,000. Fulsom records depreciation using the straight-line method. Show the cost calculation and depreciation and book value for each year End of yr cost Depreciation expense Accumulated depreciation Book value 1 2 3 4 5 Key things to note: depreciation is equal per month Book value at the end of the useful life equals the salvage value Recording all the long term tangible asset transactions: Purchase of equipment: Assets Liabilities Equity Depreciation of machine at end of first year Assets Liabilities Equity 6-2

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Chapter 06 - Accounting for Long-Term Operational Assets Depreciation of machine at end of second year Assets Liabilities Equity Sale of asset after 4 years for 13,000 Calculation gain or loss = proceeds less book value = Assets Liabilities Equity Gain on sale of equipment = REVENUE Loss on sale of equipment = EXPENSE These are shown after income from operations! Revision of Estimates Periodically a company will change the useful life or salvage value based on new information that becomes available. Revised depreciation starts with existing book value and then recalculates the amount.
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