Question

Cost of Assets, Subsequent Book Values, and Balance Sheet Presentation

The following events took place at Pete's Painting Company during 2017:

1. On January 1, Pete bought a used truck for $13,000. He added a tool chest and side racks for ladders for $4,200. The truck is expected to last four years and then be sold for $800. Pete uses straight-line depreciation.
2. On January 1, he purchased several items at an auction for $4,550. These items had fair market values as follows:
   

   10 cases of paint trays and roller covers	$200
   Storage cabinets	2,700
   Ladders and scaffolding	3,600

   
   Pete will use all of the paint trays and roller covers this year. The storage cabinets are expected to last nine years; the ladders and scaffolding, four years.
3. On February 1, Pete paid the city $1,836 for a three-year license to operate the business.
4. On September 1, Pete sold an old truck for $5,210 that had cost $13,230 when it was purchased on September 1, 2012. It was expected to last eight years and have a salvage value of $750. Pete used the straight line method of depreciation.

Required:

1. For each situation, determine the value assigned to the asset when it is purchased. For (d), determine the book value when it is sold. Do not round intermediate calculations. If required, round your final answers to the nearest dollar.

Asset	Relevant Value
a. Recorded cost of truck	$
b. Part 1 - recorded amount of supplies	$
b. Part 2 - recorded cost of office furniture	$
b. Part 3 - recorded cost of equipment	$
c. Recorded cost of prepaid license	$
d. Book value of truck at time of sale	$

2. Determine the amount of depreciation or other expense to be recorded for each asset for 2017. Do not round intermediate calculations. If required, round your final answers to the nearest dollar.

Asset	2017 Expense Amount
a. Truck depreciation	$
b. Part 1 - supplies expense	$
b. Part 2 - office furniture depreciation	$
b. Part 3 - equipment depreciation	$
c. License amortization	$
d. Part 1 - old truck depreciation	$
d. Part 2 - gain/loss on the sale (use the minus sign to indicate a loss)	$

Feedback

Determine value at time of purchase. Use the fair market values of the supplies expense, office furniture and equipment at the time of purchase. Determine value of prepaid license expense.

Compute the amount of the prepaid license that is used in the current year. Compute book value of the truck at the time of sale.

3. How would these assets appear on the balance sheet as of December 31, 2017?

Pete's Painting Company
Balance Sheet (Partial)
December 31, 2017
Current assets:
Accumulated depreciation Cash Equipment License expense Prepaid license expense		$
Property, plant, and equipment:
License expense Prepaid license expense Supplies expense Truck Truck depreciation	$
Cash License expense Office furniture Office furniture expense Prepaid license expense
Cash Equipment Equipment expense Prepaid license expense Supplies expense
	$
Accumulated depreciation Cash Depreciation expense Prepaid license expense Supplies expense
Total property, plant, and equipment, net		$

Answer 1

Answer
Situation	Asset	Asset value when purchased / Book value for (d) when sold	Depreciation / Other expense for 2017
a.	Used Truck	$17200	$4100
		($13000 + $4200)	17200 - $800) / 4 years
b.	Paint trays and roller covers	$140	$140
		($200 / $6500 x $4550)
	Storage cabinets	$1890	$210
		($2700 / $6500 x $4550)	($1890 / 9 years)
	Ladders and scaffolding	$2520	$630
		($3600 / $6500 x $4550)	($2520 / 4 years)
c.	Business License Fees	$1836	$561
			($1836 x 11 / 36)
d.	Old Truck	$5375*	$1017
			($1,525x 8 / 12)
*Cost	13000
Less: Salvage value	800
Depreciable value	12200
Estimated life	8 years
Annual Depereciation	1525
Depreciation for 5 years	7625
Book value when sold	5375
	($13000 - $7625)
Pete's Painting Company
Balance Sheet (Partial)
As at December 31, 2017
Assets	$	$
Non-Current Assets
Prepaid Business License fees		1,275
Property, Plant, and Equipment
Used Truck	17,200
Less: Accumulated Depreciation	4,100	13,100
Storage Cabinets	1890
Less: Accumulated Depreciation	210	1680
Ladders and scaffolding	2,520
Less: Accumulated Depreciation	630	1,890
The paint trays and roller covers will not appear in the balance sheet as they are entirely expensed out in 2017.
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