Wilshire Purchased Equipment At The Beginning Of 20x0 For 11
Wilshire Purchased Equipment At The Beginning Of 20x0 For 11000 Wil
Wilshire purchased equipment at the beginning of 20X0 for $11,000. Wilshire decided to depreciate the equipment over a 5-year period using the straight-line method. Wilshire estimated its residual value at $2,000. The estimated fair market value at the end of 20X0 was $10,000. Which of the following statements is correct concerning Wilshire's financial statements at December 31, 20X1? a. b. c. d.
Paper For Above instruction
This paper analyzes Wilshire’s accounting treatment of its equipment purchased at the beginning of 20X0, focusing on depreciation calculations, book value assessments, and the implications for financial statements at December 31, 20X1. The goal is to determine the correct statement among the provided options based on the principles of depreciation and asset valuation.
Introduction
The accurate recording of asset depreciation and valuation is essential for reflecting a company's financial health accurately. Wilshire’s purchase of equipment for $11,000 with an estimated residual value of $2,000 and a useful life of five years involves several accounting considerations, including straight-line depreciation, asset book value, and potential impairment based on market value changes.
Depreciation Calculation and Book Value at December 31, 20X0
Using the straight-line depreciation method, the annual depreciation expense is calculated as:
\[
\text{Annual Depreciation} = \frac{\text{Cost} - \text{Residual Value}}{\text{Useful Life}} = \frac{\$11,000 - \$2,000}{5} = \$1,800
\]
For the year ending December 31, 20X0, Wilshire records \$1,800 of depreciation expense. The book value of the equipment at the end of 20X0 is:
\[
\text{Book Value at 12/31/20X0} = \text{Cost} - \text{Accumulated Depreciation} = \$11,000 - \$1,800 = \$9,200
\]
Book Value at December 31, 20X1
By the end of 20X1, accumulated depreciation increases by another \$1,800, leading to:
\[
\text{Book Value at 12/31/20X1} = \$9,200 - \$1,800 = \$7,400
\]
Fair Market Value and Potential Impairment
At the end of 20X0, the fair market value was estimated at \$10,000, which exceeds the book value of \$9,200, indicating no impairment. While the fair value at the end of 20X0 is higher than the book value, fair value in subsequent years is not explicitly provided, nor is there any indication of impairment at December 31, 20X1.
Generally, under accounting standards such as US GAAP or IFRS, if the fair market value falls below the book value and impairment exists, an impairment loss should be recognized. However, absent explicit fair value at the end of 20X1 or evidence of impairment, the appropriate approach is to carry the equipment at its book value, considering depreciation for the period.
Analysis of the Options
Given the information, the likely correct statement is that Wilshire’s equipment is reported at its accumulated depreciation and book value, which is \$7,400 at December 31, 20X1. If the options include statements about depreciation, book value, and impairment, the correct choice would align with this analysis.
Conclusion
Wilshire’s financial statements at December 31, 20X1, should reflect the equipment’s book value after two years of depreciation, amounting to \$7,400, with no impairment recognized unless the fair market value indicates otherwise. Proper adherence to depreciation principles ensures the financial statements accurately represent Wilshire’s asset value and financial position.
References
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