Question

The following transactions and adjusting entries were completed by a paper-packaging company called Gravure Graphics International during 2018 and 2019. The company uses straight-line depreciation for trucks and other vehicles, double-declining-balance depreciation for buildings, and straight-line amortization for patents. 2018 2 Paid $100,000 cash to purchase storage shed components. 3 Paid $5,000 cash to have the storage shed erected. The storage shed has an estimated life of 10 years and a residual value of $8,000. January January 1 Paid $46,000 cash to purchase a pickup truck for use in the business. The truck has an estimated useful life April of five years and a residual value of $6,000. May 13 Paid $400 cash for minor repairs to the pickup truck's upholstery July 1 Paid $15,000 cash to purchase patent rights on a new paper bag manufacturing process. The patent is estimated to have a remaining useful life of five years. December 31 Recorded depreciation and amortization on the pickup truck, storage shed, and patent. 2019 June 30 Sold the pickup truck for $39,000 cash. (Record the depreciation on the truck prior to recording its disposal. December 31 Recorded depreciation on the storage shed. Also determined that the patent was impaired and wrote off its remaining book value (i.e., wrote down the book value to zero). Deauired.

Answer 1

Straight Line Depreciation = (Initial Cost - Salvage Value)/Useful Life Double Declining Balance = 2/Useful Life x Book Value Cost Salvage Useful Life Particulars Storage Building Truck Patent $1,05,000 $46,000 $15,000 $8,000 $6,000 Year Particulars From No of Months Depreciation/ Amortisation Closing Book Value 2018 Storage Building 2019 Storage Building 2018 Truck 2019 Truck 2018 Patent 2019 Patent Date of Purchase/ Capitalisation 3-Jan-18 3-Jan-18 1-Apr-18 1-Apr-18 1-Jul-18 1-Jul-18 Cost/Opening Book value $1,05,000 $84,000 $46,000 $40,000 $15,000 $13,500 3-Jan-18 31-Dec-18 1-Jan-19 31-Dec-19 1-Apr-18 31-Dec-18 1-Jan-19| 30-Jun-19 1-Jul-18 31-Dec-18 1-Jan-1931-Dec-19 12 [2/10 x $105000] 12 [2/10 x $84000] 9 [($46000 - $6000)/5)/12*9] 6 [($46000 - $6000)/5)/12*6] 6 [($15000/5)/12*6] 12 [($15000/5)] $21,000 $16,800 $6,000 $4,000 $1,500 $3,000 $84,000 $67,200 $40,000 $36,000 $13,500 $10,500 2 Depreciation/Amortisation is provided for proportionate year where it has been used for part of the year. Journal Entry Date Particulars Debit Credit 2-Jan-18 Building $1,00,000 Cash $1,00,000 (To Record payment made for Storage shed Component) 3-Jan-18 Building $5,000 Cash $5,000 (To Record payment made for erection of Storage Building) 1-Apr-18 Truck $46,000 Cash $46,000 (To Record purchase of truck) 13-May-18 Repairs and Maintenance $400 Cash $400 (To Record repairs and maintenance expense) 1-Jul-18 Patent $15,000 Cash $15,000 (To Record purchase of patent)

$21,000 $6,000 $1,500 $21,000 $6,000 $1,500 7 $4,000 $4,000 $10,000 $39,000 31-Dec-18 Depreciation- Building Depreciation-Truck Amortisation - Patent Accumulated Depreciation - Building Accumulated Depreciation - Truck Accumulated Amortisation - Patent (To Record depreciation / amortisation for the year) 30-Jun-19 Depreciation - Truck Accumulated Depreciation - Truck (To Record depreciation on truck on sale of truck) 30-Jun-19 Accumulated Depreciation - Truck Cash Truck Gain on Sale of Assets (To Record gain on sale of truck) 31-Dec-19 Depreciation- Building Accumulated Depreciation - Building (To Record depreciation for the year) 31-Dec-19 Amortisation - Patent Accumulated Depreciation - Patent (To Record amortisation for the year) 31-Dec-19 Accumulated Depreciation - Patent Patent (To Record reversal of accumulated amortisation ) 31-Dec-19 Impairment Loss Patent (To Record impairment loss of patent) $46,000 $3,000 $16,800 $16,800 $3,000 $3,000 $4,500 $4,500 12 $10,500 $10,500