Question

Certossi Service Ltd. uses straight-line depreciation. The company's fiscal year end is December 31. The following transactions and events occurred during their first three years of operations:
2014   Jul   1   Purchased equipment for $32,000 cash, with shipping costs of $2,000.
   Nov   3   Incurred ordinary repairs on the computer of $360.
   Dec   31   Recorded 2014 depreciation on the basis of a four-year life and estimated residual value of $200.
2015   Dec   31   Recorded 2015 depreciation.
2016   Jan   1   Paid $1,600 for a major upgrade of the equipment. This expenditure is expected to increase the operating efficiency and capacity of the equipment.

Instructions
Prepare journal entries to record the above events. (Show calculations.)

Answer 1

Date	Accounts	Debit	Credit
Jul 1, 2014	Equipment	$34,000	-
	Cash	-	$34,000
Nov 3, 2014	Repairs and maintenance	$360	-
	Cash	-	$360
Dec 31, 2014	Depreciation expense [($34,000 - $200) / 4] X 6/12	$4,225	-
	Accumulated depreciation	-	$4,225
Dec 31, 2015	Depreciation expense ($34,000 - $200) / 4	$8,450	-
	Accumulated depreciation	-	$8,450
Jan 1, 2016	Equipment	$1,600	-
	Cash	-	$1,600