LESSON 14-5 Planning and Recording Depreciation Adjustments 4/20/2017 LESSON 14-5 Planning and Recording Depreciation Adjustments

CALCULATING DEPRECIATION EXPENSE AND BOOK VALUE page 424 (continued on next slide) Book Value The original cost minus the depreciation to-date. Estimated Salvage Value The expected amount to receive from the sale or disposal of an asset at the end of its useful life. Depreciation The amount an asset is no longer worth as it ages. Straight-Line Method of Depreciation A method used to calculate the depreciation of an asset. LESSON 14-5

CALCULATING STRAIGHT-LINE DEPRECIATION 3 CALCULATING STRAIGHT-LINE DEPRECIATION page 424 Straight-Line Depreciation Calculation Original Cost minus Salvage value divided by years of useful life equals Depreciation per year of useful life; Purchased Computer Desk for $1250. Estimated salvage value is $250. The useful life of the desk is 5 years. Annual Depreciation Expense is $200 per year. Years of Useful Life / Salvage Value – Original Cost Annual Depreciation = $1,250.00 – $250.00 / 5 = $200.00 LESSON 14-5

CALCULATING DEPRECIATION EXPENSE 4 CALCULATING DEPRECIATION EXPENSE page 424 Purchased Computer Desk for $1250. Annual Depreciation Expense is $200 per year. Office Equipment Record the depreciation expense for the year for the computer desk @ $200 for the year. Dec 31 Bal $1250 Contra Acct Accum. Depr. Office Equipment Depr. Expense Office Equipment Dec 31 Bal $400 $200 $200 New balance $600 LESSON 14-5

ANALYZING AND RECORDING ADJUSTMENTS FOR DEPRECIATION EXPENSE page 425 1. Write the debit amounts. 2. Write the credit amounts. 3. Label the adjustments. LESSON 14-5

CALCULATING BOOK VALUE page 424 Book Value Calculation Original Cost minus total accumulated depreciation to-date equals Book Value Ending Book Value = Total Accumulated Depreciation – Original Cost $1,250.00 – $600.00 = $650.00 Stop here….Federal Income Tax LESSON 14-5

Calculating Federal Income Tax and Completing a Work Sheet LESSON 14-6 4/20/2017 LESSON 14-6 Calculating Federal Income Tax and Completing a Work Sheet 7

FEDERAL INCOME TAX EXPENSE ADJUSTMENT 8 FEDERAL INCOME TAX EXPENSE ADJUSTMENT page 427 Total of Income Statement Credit column $ 500,253.10 Less total of Income Statement Debit column before federal income tax –396,049.91 Equals Net Income before Federal Income Tax $ 104,203.19 You must determine the Net Profit (Net Income before Federal Tax) in order to calculate the Federal Income Tax. Calculate Net Profit on a piece of paper. LESSON 14-6

CALCULATING FEDERAL INCOME TAX 9 CALCULATING FEDERAL INCOME TAX page 428 Total Net Income: $104,203.19 Tax Due: $23,889.24 Already paid: $18,000 Now Due: $5889.24 LESSON 14-6

RECORDING THE FEDERAL INCOME TAX ADJUSTMENT 10 RECORDING THE FEDERAL INCOME TAX ADJUSTMENT page 429 Add adjusting entries for Federal Income Tax Payable/Expense Total and rule the Adjustments columns Extend totals to Income Statement and Balance Sheet LESSON 14-6

COMPLETING A WORK SHEET 11 COMPLETING A WORK SHEET page 430 Compute the Net Income after Federal Income Tax Total, prove, and rule the Worksheet LESSON 14-6

A COMPLETED 8-COLUMN WORK SHEET 12 A COMPLETED 8-COLUMN WORK SHEET page 432 LESSON 14-6