Question

Precision Construction entered into the following transactions during a recent year.

January		2		Purchased a bulldozer for $290,000 by paying $40,000 cash and signing a $250,000 note due in five years.
January		3		Replaced the steel tracks on the bulldozer at a cost of $40,000, purchased on account. The new steel tracks increase the bulldozer's operating efficiency.
January		30		Wrote a check for the amount owed on account for the work completed on January 3.
February		1		Repaired the leather seat on the bulldozer and wrote a check for the full $2,800 cost.
March		1		Paid $15,600 cash for the rights to use computer software for a two-year period.

1. 1-b. Prepare the journal entries for each of the above transactions.

2. 2. For the tangible and intangible assets acquired in the preceding transactions, determine the amount of depreciation and amortization that Precision Construction should report for the quarter ended March 31. The equipment is depreciated using the double-declining-balance method with a useful life of five years and $60,000 residual value.

3. 3. Prepare a journal entry to record the depreciation and amortization calculated in requirement 2.

Req. 2

For the tangible and intangible assets acquired in the preceding transactions, determine the amount of depreciation and amortization that Precision Construction should report for the quarter ended March 31. The equipment is depreciated using the double-declining-balance method with a useful life of five years and $60,000 residual value. (Do not round intermediate calculations.)

	Partial Year Depreciation-Equipment Amortization-Licensing Rights

Req. 3 : Prepare a journal entry to record the depreciation and amortization calculated in requirement 2. (If no entry is required for a transaction/event, select "No Journal Entry Required" in the first account field.)

Answer 1

1. Journal Entries for the said transactions:

Date	Dr/Cr	Description	Debit ($)	Credit ($)	Explanation
2-Jan	Dr	Heavy Vehicles - Fixed Asset	$        290,000
	Cr	Cash		$          40,000
	Cr	5-year Note Payable		$        250,000
		(Being bulldozer purchased for cash & against note payable)
3-Jan	Dr.	Heavy Vehicles - Fixed Asset	$          40,000		As the Steel track is a major component in bulldozer, which is going to be utilised for more than a year, it has to be capitalised along with asset
	Cr.	Accounts Payable		$          40,000
		(Being steel track of bulldozer replaces to increase operating efficiency)
30-Jan	Dr.	Accounts Payable	$          40,000
	Cr.	Bank account		$          40,000
		(being check initiated for payment of replacement cost)
1-Feb	Dr.	Repair expense	$             2,800		Repair cost is insignificant and hence expensed off
	Cr	Bank account		$            2,800
		(Being seat in bulldozer replaced)
1-Mar	Dr	Prepaid Expense -Software License	$          15,600		Since the value of license is insignificant, not directly related to nature of business and has only right to access (i.e) ownership not transferred, we can expense it off during year end for year 1 and year 2 has to be expensed off in the following year. As of now, accounting is done at Prepaid Expense account and during year end evaluation, adjustment entry to expense account has to be made.
	Cr.	Cash account		$          15,600
		(Being license contract of 2-year period accounted)

2) Depreciation & Amortization Schedule as below:

Depreciation Schedule of Heavy Vehicles - Fixed Asset
Asset purchase value	$        290,000
Add: Replacement cost	$          40,000
Total Asset value	$        330,000
Residual (or) salvage value	$          60,000
Useful life in years	5
Depreciation % under double declining method = (100%/useful life)*2	40%
Depreciation per annum = (Asset value-Salvage value)*Depreciation %	$        108,000
Depreciation per month = Depreciation Per annum/12	$             9,000
Depreciation for Jan, Feb & Mar (Monthly depreciation * 3)	$          27,000

Amortization Schedule for licensing right - Not Applicable

3. Journal entry for Depreciation & Amortization for Quarter Ending March 31:

Date	Dr/Cr	Description	Debit ($)	Credit ($)
31-Mar	Dr.	Depreciation Expense - Heavy Vehicle	$          27,000
	Cr.	Accumulated Depreciation - Heavy Vehicle		$          27,000
		(being depreciation for 3-month ending March accounted)

No Entry for Amortization - Licensing Rights as it is not capitalized.