[hotboy20102008]

I honestly have no idea about this question:

The equipment was purchased in August 2005 for $840,000 and was estimated to have a useful life of 10 years and no residual value. The company amortizes all assets for a half year in the year of acquisition and the year of disposal. TAX RATE: 38%

Do jounal entry



here's what I think:
DR.amortiation expense 63,000
CR. Acc. Amot - equip 63,000

however can't figure out the numbers here:

DR. Acc. Amortization- Equip
CR. Acc. Amortization- Equip
CR. Retained Earnings
CR. Tax Payable


SO PLEASE HELP! THANKS IN ADVANCE

[rehmanvohra]

In the first year of acquisition the depreciation charge will be (840,000 x.10)/2 = $42,000
In the next 9 years the charge will be $84,000
and in the last year $42,000

Charging depreciation saves the tax for the entity. I feel that the question is incomplete since the tax aspect will come into play when the asset is sold at a price higher than its book value and your question does not mention anything about it.