Question

Sandoval Gravel Company entered into each of the following transactions during 2018. Sandoval uses straight-line depreciation on buildings and furniture, and the 200% declining balance method on equipment. Round all computations to the nearest dollar. A. On January 1, Sandoval paid $ 16,000 for a used John Deere 640R front end loader. The loader has a five-year useful life and a $2,500 estimated residual value. B. On April 1, Sandoval spent $20,000 on a used construction trailer complete with furniture. The trailer had a fair value of $18,000, and the furniture a fair value of $6,000. The trailer has a useful life of five year with no residual value. The furniture has a useful life of four years and a $1,000 residual value. C. On September 1, Sandoval acquired a two acre site and a shed in exchange for a $350,000 note payable due on September 1, 2025. Interest is payable quarterly beginning on December 1, 2019. Sandoval spent $43,000 clearing the land, demolishing the shed, and hauling away the debris. D. On January 1, Sandoval paid $30,000 to recondition a bulldozer originally purchased for $100,000 on 1/1/15. The bulldozer had an estimated useful life of 8 years and a $30,000 residual value. The reconditioning will extend the life by three years. E. Scrapped a dump truck on 6/30/18 for $750. The truck was purchased on 1/1/13 for $95,000. It had a six-year useful life and a $5,000 residual value. F. On January 1, Sandoval paid $10,000 for a five-year license to store explosives on site. Legal • fees and inspection costs related to the license totaled $4,500. Required: 1) Prepare the journal entries to record each transaction. 2) Prepare any adjusting journal entries necessary at 12/31/18. 3) Show what would be reported on the 2018 income statement related to the above transactions. 4) Prepare the operating, investing and financing sections of the statement of cash flow for 2018. Show what would have been reported for each transaction. The operating section should be prepared under both the direct and indirect methods.

Answer 1

Answer to 1 In the books of Sandoval Gravel Company Journal Entry Description Debit Date Credit $ 16,000 Jan-01 Equipment (front end loader) Cash (being equipment purchased) $ 16,000 $ $ 15,000 5,000 Apr-01 Trailer (18000/24000* 20000) Fumiture (6000/24000* 20000) Cash (being trailer & fumiture purchased) 20,000 Sep-01 Land (350000+43000) $ 3,93,000 Notes Payable (being land purcahsed in exchange of notes payable) $ 3,93,000 30,000 Jan-01 Equipment (bulldozer) Cash (being bulldozer reconditioned) $ 30,000 750 4,250 Jun-30 Cash Loss on sale of truck Truck (being truck scrapped) 5,000 14,500 Jan-01 License fees Cash (being 5 year license purchased) $ 14,500 Answer to 2 Adjusting entry Dec-31 Depreciation Accumulated Depreciation (being depreciation accounted) 34,347 $ 34,347 useful life method of depreciation Depreciation 200% declining balance 200% declining balances straight line $ 6,400 6,000 1,000 Calculation of depreciation Name book value Front end loader trailer furniture Bulldozer(value as $ Addition New book value License fees Total Residual value 16,000 $ 2,500 15,000 $ 5,000 $ 1,000 42,188 30,000 72,188 $ 30,000 14,500 $ 00w 200% declining balance $ Straight line $ 18,047 2,900 34,347 residual value Useful life $ 30,0008 method of depreciation Depreciation @ 25% 200% declining balance 25000 Calculation of book value of bulldozer as on 1-1-18 Book value Bulldozer (1-1-15) $ 1,00,000 Less Deprection fos 25,000 balance on 1-1-16 $ 75,000 Less Deprection fo > 18,750 Balance on 1-1-17 $ 56,250 Less Deprection fols 14,063 Balance on 1-1-18 $ 42,188 18750 14062.5 Answer to 3 Depreciation of $34,347 and loss on sale of truck amount $4,250 shall be reported in income statement Interets on note payable will also be shown in income statement. Answer to 4. Cash Flow Statement Direct Method Cash Flow from Operating Activity Net Cash Flow from operating activities Cash flow drom Investing Activities Cash flow from front loader purchase Cash flow from Trailer anf furniture Cash flow from bulldozer Cash flow from purchase of land Proceedsfrom sale of truck Purchase of license fees Net Cash used in investing activities Cash flow from Financing acticities Long term borrowing Net Cash Flow from financing activities -16,000 -20,000 -30,000 -3,93,000 750 -14,500 -4,72,750 $ $ $ 3,50,000 3,50,000 $ -1,22,750 Net increase or dercrease in cash Cash balance at the beginning Cash balance at the end Reconciliation of net income and net cash provided from operating activities XXX Net Income (a) Add/(de duct) items not affecting cash Depreciation expense Gain/loss) on sale of equipment Total (b) 34,347 4,250 38,597 Net cash Provided by operating activities (a+b) Cash Flow Statement Indirect Method Cash Flows from Operating activity Net Income (a) XXX Adjustments to reconcile net income to net cash provided by operating activities Deprecition on fixed assets Loss on sale of truck Total (b) Net cash Provided by operating activities (a+b) 34,347 4,250 38,597