Question

Mason Brewing sells craft beer and runs a brewery academy offering brewing lessons in
Vancouver. On June 30th, 2018, Mason Brewing purchased a new Copper Kettle to brew
a special new micro-brew.
Mason brewing incurred the following costs:
1) The final invoice price for the copper kettle was $ 35,340
2) Due to it's unusual size, shipping costs of $ 830 were incurred
3) Mason Brewing purchased a one year insurance policy costing $ 2,800 to mitigate risk
4) Mason brewing hired specialists from the supplier to complete installation of the kettle for $ 630
5) To ensure quality from the very first batch, Mason brewing spent $ 1,200 testing the equipment
Mason brewing estimates they can use the new copper kettle for 10 years, at which time they could
probably sell it to a discount brewery for $ 3,000 . They also expect to use the kettle to brew
approximately 900,000 litres of beer.
Required:
1) Record the entries for the costs incurred on June 30th, 2018 to acquire the Copper Kettle. Assume
all costs were paid in cash.

2) Record depreciation at December 31st 2018 AND December 31st, 2019 assuming Mason Brewing uses
the following depreciation methods
A) Straight-line
B) Units of production
- Assume Mason Brewing brews 36,000 litres and 94,500 litres in 2018 and 2019, respectively.
C) Double Declining Balance method

3) What is the book value of the equipment at December 31st, 2019, under the three methods?
4) Mason Brewing decides to scrap the new micro-brew after reviewing 2019 results. On January 1, 2020 they
sell the Copper Kettle to a local buyer. Assuming Mason Brewing used the straight-line method, record
the disposal assuming a selling price of:
A) $ 30,000
B) $ 35,000

Answer 1

1) Recording the costs on June 30, 2018 to acquire the Copper Kettle.
Date	Accounts Title	Debit $	Credit $
30-Jun-18	Copper Kettle-Purchase	35340
	Copper kettle - Freight in	830
	Copper Kettle - Insurance	2800
	Copper Kettle - Installation	630
	Copper Kettle - Testing	1200
	Cash		40800
	(being purchase price, freight charges &
	other expense on Copper kettle booked)
2) Depreciation of Copper Kettle:
A) Straight line:
For 2018	(40800-3000)*0.50/10 =	1890
For 2019	(40800-3000)/10 =	3780
B) Units of Production:
For 2018	(40800-3000)*36000/900000 =	1512
For 2019	(40800-3000)*94500/900000 =	3969
C) Double Declining Balance:
For 2018	40800 * (10% *2) / 2 =	4080
For 2019	(40800-4080) * (10% *2) =	7344
3) Book value of the equipment ie. Copper Kettle:
On Dec 31, 2019:
Straight line	40800 - 5670 =	35130
Units of production	40800 - 5481 =	35319
Double Declining	40800 - 11424 =	29376
4) Journal entries on disposal :
A) Selling Price = $30000
Date	Accounts Title	Debit $	Credit $
1-Jan-20	Cash	30000
	Acc. Dep. - Copper Kettle	5670
	Loss on disposal	5130
	Copper Kettle		40800
	(being loss on disposal of equipment booked)
B) Selling Price = $35000
1-Jan-20	Cash	35000
	Acc. Dep. - Copper Kettle	5670
	Loss on disposal	130
	Copper Kettle		40800
	(being loss on disposal of equipment booked)