Question

Problem 3. A company purchased a cooling system on January 2 for $225,000. The system had an estimated useful life of 15 years. After using the system for 13 full years, the company completed a renovation of the system at a cost of $33,000 and now expects the system to be more efficient and last 8 years beyond the original estimate. The company uses the straight-line method of depreciation. (a) Prepare the journal entry at January 3, to record the renovation of the cooling system. (b) Prepare the journal entry at December 31, to record the revised depreciation for the thirteenth year.

Answer 1

Problem 3

Journal entry (a) & (b)

Date Particulars Debit($) Credit($)

Dec 3 Cooling system A/c 33000

To cash A/c 33000

(Being renovation made to the cooling system )

Dec 31 Depreciation A/c ((30000+33000)/10) 6300

To Cooling system A/c 6300

(Being depreciation charged on cooling system)

Problem 4

Calculation of amount of depreciation to be charged to be recorded in each of the building's remaining eight years

Particulars Amount($)

Cost of building 370000

- Depreciation for 10 years 180000

((370000-10000)/20)*10   

Value of building at beginning of 11th year 190000

Revised estimated life 8

Revised salvage value 16000

Depreciation to be charged 21750

((190000-16000)/8)

Problem 5

1. Journal entry

Date Particulars Debit($) Credit($)

july 1 Depreciation A/c 7200

To Equipment A/c 7200

(Being depreciation charged on the equipment )

2(a) Cash A/c 22000

To Equipment A/c 21600

To profit on sale of equipment A/c 400

(Being profit recognized on the disposal of equipment)

2(b) Cash A/c 15000

Loss on disposal of equipment A/c 6600

To equipment A/c 21600

(Being loss recognized on the disposal of equipment)

2(c) Proceeds from insurance co A/c 18000

Loss on destroy by fire A/c 3600

To equipment A/c 21600

(Being insurance proceeds received)

Problem 6

Journal entry

Date Particulars Debit($) Credit($)

1 Land A/c 522000

Building A/c 243000

Equipment A/c 135000

To cash A/c 780000

To Kimberly co A/c 120000

(Being plant assets acquired from kimberly co)

Problem 7

Depletion expense for year 1 = $4875000*689000/15000000 = $223925

Depletion expense for year 2 = $4875000*935000/15000000 = $303875

Book value of the property at the end of year 2 = $4875000-$223925-$303875 = $4347200.