Question

Cost of plant assets Kegler Bowling installs automatic scorekeeping equipment with an invoice cost of $190,000. The electrical work required for the installation costs $20,000. Additional costs are $4,000 for delivery and $13,700 for sales tax. During the installation, a component of the equipment is carelessly left on a lane and hit by the automatic lane-cleaning machine. The cost of repairing the component is $1,850. What is the total recorded cost of the automatic scorekeeping equipment? Revenue and capital expenditures Classify the following as either a revenue expenditure or a capital expenditure. a. Paid $40,000 cash to replace a compressor on a refrigeration system that extends its useful life by four years. b .Paid $200 cash per truck for the cost of their annual tune-ups. c. Paid $175 for the monthly cost of replacement filters on an air-conditioning system. d. Completed an addition to an office building for $225,000 cash. Prepare the journal entries to record transactions a and d of part 1. B. Partnership income allocation Ann Stolton and Susie Bright are partners in a business they started two years ago The partnership agreement states that Stolton should receive a salary allowance of $15,000 and that Bright should receive a $20,000 salary allowance. Any remaining income or loss is to be shared equally. Determine each partner's share of the current year's net income of $52,000. C. Liquidation of partnership The Field, Brown & Snow partnership was begun with investments by the partners as follows: Field, $131,250; Brown, $165,000; and Snow, $153,750. The operations did not go well, and the partners eventually decided to liquidate the partnership, sharing all losses equally. On May 31, after all assets were converted to cash and all creditors were paid, only $45,000 in partnership cash remained. Compute the capital account balance of each partner after the liquidation of assets and the payment of creditors. D. Partial-year depreciation; disposal of plant asset Rayya Co. purchases and installs a machine on January 1, 2015, at a total cost of $105,000. Straight-line depreciation is taken each year for four years assuming a seven-year life and no salvage value. The machine is disposed of on July 1, 2019, during its fifth year of service. Prepare entries to record the partial year's depreciation on July 1, 2019, and to record the disposal under the following separate assumptions: The machine is sold for $45,500 cash. An insurance settlement of $25,000 is received due to the machine's total destruction in a fire.

Answer 1

Answer :

A. The Cost of Automatic Scorekeeping Equipment:

Invoice Value = $190000

Installation charges = $20000  

Delivery Cost = $ 4000

Sales Tax = $13700

Repair & Maintenance= $1850

Cost of New Machine= $ 229550

Hence, all the above costs will be treated as capital expenditure and will added to the cost of new machine.

Classification of Revenue and Capital Expenditure:

S.no.	Particulars	Nature of Transactions
a.	Paid $40000 cash to replace a compressor on a refrigeration system that extends its useful life by 4 years	Capital Expenditure
b.	Paid $200 per truck for the cost of their annual tune-ups	Revenue Expenditure
c.	Paid $175 for the monthly cost of replacement filters on an air conditioning systems	Revenue Expenditure
d.	Completed an addition to an office building for $225000 cash	Capital Expenditure

Revenue Expenditures are those expenditures which are incurred on for generating a revenue or for the maintenance of revenue generating assets.

Capital Expenditures are those expenditures which are incurred once in a lifetime to expand its life or to generate additional profits.

Journal Entries of a & d

Particulars	Debit (amount in $)	Credit (amount in $)
Repair & Maintenance A/c Dr To Cash A/c	40000	40000
Building A/c Dr To Cash A/c	225000	225000

B. Partnership account:

Particulars	Amount(in $)	Particulars	Amount (in $)
Salary of Ann Stolton	15000	Net Income	52000
Salary of Susie Bright	20000
Net Residual Income	17000

Hence this net residual income will be divided into both partners equally the journal entry will be:

Particulars	Debit (Amount in $)	Credit (Amount in $)
Income A/c Dr	17000
To Ann Stolton Capital A/c		8500
To Bright A/c Capital A/c		8500

C. Liquidation:

The cash will be divided equally among the partners the journal entry is:

Particulars	Debit (Amount in $)	Credit (Amount in $)
Field Capital A/c Dr	15000
Brown Capital A/c Dr	15000
Snow Capital A/c Dr	15000
To Cash A/c		45000

D. Partial Depreciation for july 1

Date	Particulars	Debit (Amount in $)	Credit (Amount in $)
1/07/2019	Depreciation A/c Dr To Assets A/c	7500	7500
01/07/2019	Bank A/c Dr	25000
	Depreciation A/c Dr	7500
	Loss on Sale A/c Dr	12500
	To Plant		45000

Depreciation is calculated as:

Costof Plant - SalvageValue Numberofyears
=
105000
= $ 15000

and 6 months depreciation is $ 7500