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 $101,000 cash to purchase storage shed components.
January		3		Paid $6,000 cash to have the storage shed erected. The storage shed has an estimated life of 10 years and a residual value of $9,000.
April		1		Paid $47,000 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 $7,000.
May		13		Paid $500 cash for minor repairs to the pickup truck's upholstery.
July		1		Paid $14,000 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 $40,000 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.

• 1 Record the purchase of storage shed components for $101,000.

• 2 Record the payment of $6,000 to have the storage shed erected.

• 3 Record the purchase of a pickup truck for $47,000.

• 4 Record the repairs of $500 to the pickup truck.

• 5 Record the purchase of a patent for $14,000 on a new paper bag manufacturing process.

• 6 Record the depreciation and amortization expense on the pickup truck, storage shed and patent for the year.

• 7 Record the depreciation for the truck up to the date of sale.

• 8 Record the sale of the truck for $40,000 cash.

• 9 Record the depreciation on the storage shed for the year.

• 10 Record the Patent Amortization expense for the full year.

• 11 Record the reversal of the accumulated amortization of patents.

• 12 Record any impairment loss incurred on the patent.

Answer 1

Journal entries
Event	Date	General journal	Debit	Credit
1	Jan 2, 2018	Storage Shed (Building)	101,000
		Cash		101,000
		(To Record the purchase of storage shed components for $101,000.)
2	Jan 3, 2018	Storage Shed (Building)	6,000
		Cash		6,000
		(To Record the payment of $6,000 to have the storage shed erected.)
3	Apr 1, 2018	Truck (Equipment)	47,000
		Cash		47,000
		(To Record the purchase of a pickup truck for $47,000.)
4	May 13, 2018	Repair expense	500
		Cash		500
		(To Record the repairs of $500 to the pickup truck.)
5	Jul 1, 2018	Patent	14,000
		Cash		14,000
		(To Record the purchase of a patent for $14,000 on a new paper bag manufacturing process.)
6	Dec 31, 2018	Depreciation expense (9800+6000)	15,800
		Amortization expense	1,400
		Accumulated depreciation - Storage Shed (Building) (101000+6000=107000) ((107000-9000)/10)		9,800
		Accumulated depreciation - Truck (Equipment) ((47000-7000)/5) = 8000 (Apr to Dec = 9 months) (8000*9/12)		6,000
		Accumulated Amortization - Patent (14000/5=2800) (Jul to Dec = 6 months) (2800*6/12)		1,400
		(To record adjustment entry for Depreciation and amortization expense)
7	Jun 30, 2019	Depreciation expense - Truck (Equipment)	4,000
		Accumulated depreciation - Truck (Equipment)		4,000
		(To record depreciation for pickup truck.) (Jan to Jun = 6 months) (8000*6/12)
8	Jun 30, 2019	Cash	40,000
		Accumulated depreciation - Truck (Equipment) (6000+4000)	10,000
		Gain on sale of Truck		3,000
		Truck (Equipment)		47,000
		(To record sale of the truck .) (Book value = 47000-10000 = 37000) (Gain = 40000-37000)
9	Dec 31, 2019	Depreciation expense	9,800
		Accumulated depreciation - Storage Shed (Building)		9,800
		(To record depreciation for Storage Shed.)
10	Dec 31, 2019	Amortization expense	2,800
		Accumulated Amortization - Patent		2,800
		(To record Amortization for Patent.)
11	Dec 31, 2019	Accumulated Amortization - Patent	4,200
		Patent		4,200
		(To Record the reversal of the accumulated amortization of patents.) (1400+2800)
12	Dec 31, 2019	Impairment expense - patent	9,800
		Patent		9,800
		(To Record any impairment loss incurred on the patent.) (Book value =14000-4200 )