Question

A depreciation schedule for heavy equipment of Beniluz Road Construction Company was requested by your auditor soon after December 31, 2021, showing the additions, retirements, depreciation, and other data affecting the income of the company in the 4-year period 2018 to 2021, inclusive.

The following data were ascertained:

Balance of Equipment account, Jan. 1, 2018

Equipment No. 1 purchased Jan. 1, 2015, cost $  50,000

Equipment No. 2 purchased July 1, 2015, cost 60,000

Equipment No. 3 purchased Jan. 1, 2016, cost 55,000

Equipment No. 4 purchased July 1, 2017, cost 70,000

Balance, Jan. 1, 2018 $235,000

The Accumulated Depreciation—Equipment account previously adjusted to January 1, 2018, and entered in the ledger, had a balance on that date of $89,000

(depreciation on the four pieces of equipment from the respective dates of purchase, based on a 5-year life, no salvage value).

No charges had been made against the account before January 1, 2018.

Transactions between January 1, 2018, and December 31, 2021, which were recorded in the ledger, are as follows:

Jan. 1, 2019  Equipment No. 1 was sold for $6,000 cash; entry debited Cash and credited Equipments, $6,000.

July 1, 2019  Equipment No. 2 was traded for a larger one (No. 5), the agreed purchase price of which was $80,000. Beniluz Road Construction Co. paid the dealer $66,000 cash on the transaction.

The entry was a debit to Equipment and a credit to Cash, $66,000. The transaction has commercial substance.

July 1, 2020  Equipment No. 3 was damaged in a wreck to such an extent that it was sold as junk for $500 cash. Beniluz Road Construction Co. received $12,000 from the insurance company.

The entry made by the bookkeeper was a debit to Cash, $12,500, and credits to Miscellaneous Income, $500, and Equipment, $12,000.

July 1, 2021  A new Equipment (No. 6) was acquired for $92,000 cash and was charged at that amount to the Equipment account.

Entries for depreciation had been made by the bookkeeper at the close of each year as follows: 2018, $47,000; 2019, $42,600; 2020, $32,700; 2021, $35,400.

1) Calculate for each equipment (#1, #2, #3, #4) the annual depreciation. Total the annual depreciation for all equipment.

2)For Equipment #1, calculate the gain or loss on the sale of the equipment on Jan 1, 2019.

3)What would have been the correct journal entry for the Equipment #1 sale?

4) For Equipment #2 calculate its fair value at Jan 1, 2019, the date of the trade. Show a supporting schedule

5)For Equipment #2, what would have been the correct entry recorded on 1/1/19? Show below.

6)For Equipment #3 calculate the gain/loss on the sale and the receipt of insurance proceeds at 7/1/2020

7)For Equipment #3, what would have been the correct entry for the sale and receipt of the insurance proceeds

8) For equipment # 6, calculate the depreciation expense for 2021 (the current year)

9) complete the following tables

START HERE Complu the following tables AMOUNTS ARE AS OF 12/31/21 ENTER AMOUNTS HERE ARST Supporting Schedules Accum Depreciation Dr Bp0-2021 Equipment Equipment Cost On Becks M Equipment Ca enals Adjustment 2462007 On Books Cemrected Amount Adjustment Retained Gaming COMPLETE"? Depreciation was 42,600 Trade of EquipA2 and For 2020 Depreciation pense Sale of Equip 13

Answer 1

Question 1

Total Equip. 1 Equip. 2 Equip. 3 Equip.4 01-01-2015 01-07-2015 01-01-2016 01-07-2017 50,000 60,000 55,000 70,000 5 years 5 years 5 years 5 years 10,000 _ 12,000_ 11,000_ 14,000 1 Date of Purchase 2 Opening balance 1st Jan 2018 3 Life from date of purchase 4 Depreciation p.a. (2/3) 2,35,000 47,000

Annual Depreciation = (Cost- salvage)/life, here salvage is zero for all assets.

Question 2 & 3

1 Date of Purchase 2 Opening balance 1st Jan 2018 3 Life from date of purchase 4 Depreciation p.a. (2/3) 5 Years completed 6 Opening depreciation charged on 1st Jan 2018 Equip. 1 01-01-2015 50,000 5 years 10,000 7 Deprication for 2018 8 Closing balance 31st Dec 2018 (2-6-7) 9 Opening balalnce 1st Jan 2019 10 Sale (1st Jan 2019) 11 Loss on sale (9-10) 30,000 C8*3 10,000 10,000 10,000 6,000 4,000 Correct entry in books should have been Cash Loss on sale of asset Equip 1 debit debit credit 6,000 4,000 10,000

If sale value is less than book value then it s a loss. If sale value is greater than book value then its a profit.

Question 4

1 Date of Purchase 2 Opening balalnce 1st Jan 2018 3 Life from date of purchase 4 Depreciation p.a. (2/3) 5 Years completed 6 Opening depreciation charged on 1st Jan 2018 Equip. 2 01-07-2015 60,000 5 years 12,000 2.5 7 Deprication for 2018 8 Closing balance 31st Dec 2018 (2-6-7) 9 Opening balalnce 1st Jan 2019 10 Depreciation upto 1st July 2019 (for 6 months) 11 Fair value/BV (1st Julu 2019= 9-10) 30,000 D8*2.5 12,000 18,000 18,000 6,000 12,000