On January 1, 2014, REP Replaced a Major Component in Plant

question 12

Essay

On January 1, 2014, REP replaced a major component in Plant A, which had been operating for 10 years (from construction date of the plant); its original cost as a part of the plant was $36,000. The replacement component cost $40,000 (cash) and has an estimated life of 25 years. Plant A is depreciated as one unit on the straight-line basis (not group or composite amortization system) and has an estimated life of 30 years (total). All residual values were zero. REP has a December 31 year-end and only accounts for amortization at year-end.
(a) Give the entry (entries) on January 1, 2014.
(b) At the end of 2014, what amount of amortization should be recorded on the replacement item? $____________________.

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Definitions:

Total Manufacturing Costs

The complete sum of expenses related to producing goods, including labor, materials, and overhead.

Cost of Goods Manufactured

The total cost incurred by a company to produce goods in a specific period, including materials, labor, and overhead.

Overhead Account

An accounting category used to record all indirect costs associated with the production process, such as utilities, rent, and administrative expenses.

Actual Overhead Cost

The actual expenses incurred for overhead in the manufacturing or production process, including costs related to indirect materials, labor, and other indirect expenses.