Question

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Randy’s Restaurant Company (RRC) entered into the following transactions during a recent year.

April		1		Purchased equipment (a new walk-in cooler) for $5,600 by paying $1,300 cash and signing a $4,300 note due in six months.
April		2		Enhanced the equipment (by replacing the air-conditioning system in the walk-in cooler) at a cost of $3,300, purchased on account.
April		30		Wrote a check for the amount owed on account for the work completed on April 2.
May		1		A local carpentry company repaired the restaurant’s front door, for which RRC wrote a check for the full $150 cost.
June		1		Paid $9,840 cash for the rights to use the name and store concept created by a different restaurant that has been successful in the region.

1.For the tangible and intangible assets acquired in the preceding transactions, determine the amount of depreciation and amortization that Randy’s Restaurant Company should report for the quarter ended June 30. Equipment is depreciated using the straight-line method with a useful life of five years and no residual value. The RRC franchise right is amortized using the straight-line method with a useful life of four years and no residual value.

Answer 1

Date	Account Titles and Explanation	Debit	Credit
Apr 1	Equipment	$5,600
	Cash		$1,300
	Note payable		$4,300
Apr 2	Equipment	$3,300
	Accounts Payable		$3,300
Apr 30	Accounts Payable	$3,300
	Cash		$3,300
May 1	Repairs and maintenance expense	$150
	Cash		$150
June 1	Licensing rights	$9,840
	Cash		$9,840
Working	Depreciation and Amortization
Apr 1	Equipment	$280
	($5,600 x 1/5 x 3/12)
Apr 2	Equipment	$165
	($3,300 x 1/5 x 3/12)
	Total Depreciation	$445
June 1	Licensing rights	$205
	($9,840 x 1/4 x 1/12)
	Total Amortization	$205