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

January 2 Paid $90,000 cash to purchase storage shed components.

January 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.

April 1 Paid $33,000 cash to purchase a pickup truck for use in the business. The truck has an estimated useful life of five years and a residual value of $6,000.

May 13 Paid $100 cash for minor repairs to the pickup truck's upholstery.

July 1 Paid $25,000 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 $28,000 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). Required:

Prepare the journal entries required on each of the above dates.

Answer 1

Date	Particulars	Debit	Credit
02-Jan-18	Storage shed - Building account	90,000
	To Cash account		90,000
	(Being cash paid for purchase of storage shed)
03-Jan-18	Storage shed - Building account	5,000
	To Cash account		5,000
	(Being cash paid for installation of storage shed)
01-Apr-18	Truck and other vehicle (Pick up truck)	33,000
	To Cash account		33,000
	(Being cash paid for purchase of Pick up truck)
13-May-18	Repairs and maintenance account	100
	To Cash account		100
	(Being cash paid for repairs and maintenance of pick up)
01-Jul-18	Patent right	25,000
	To Cash account		25,000
	(Being cash paid for purchase of patent right)
31-Dec-18	Depreciation - Storage shed building	13,110
	Depreciation - Truck and other vehicle	5,370
	Amortisation Patent right	2,521
	To Accumulated depreciation		21,001
	(Being depreciation charged for YE2018)
30-Jun-19	Depreciation - Truck and other vehicle	2,693
	To Accumulated depreciation		2,693
	(Being depreciation up to 30 June'19 on Pick up)
30-Jun-19	Cash account	28,000
	Accumulated depreciation	8,063
	To Profit on sale of pick up truck		3,063
	To Truck and other vehicle account		33,000
	(Being entry for pick up sold)
31-Dec-19	Depreciation - Storage shed building	14,778
	Amortisation Patent right	5,000
	To Accumulated depreciation		19,778
	(Being depreciation charged for YE2019)
31-Dec-19	Impairment of Patent right	17,479
	Accumulated depreciation - Patent right	7,521
	To Patent right		25,000
	(Being balance Patent right impaired as on 31 Dec 2019)

Depreciation working
									365			31-12-2019
Assets	Method of depreciation	Date of addition	Cost	Residual value	Depreciable value	Est. life		31-12-2018	Depreciation (YE2018)	Book value YE 2018	30-06-2019	Depreciation (YE2019)
Trucks and vehicle	Straight line	03-01-2018	33,000	-6,000	27,000	5	5,400	363	5,370	21,630	182	2,693
Building	Double declining	01-04-2018	95,000	-8,000	87,000	10	17,400	275	13,110	73,890	365	14,778
Patent	Straight line	01-07-2018	25,000	-	25,000	5	5,000	184	2,521	22,479	365	5,000
									21,001			22,471