Question

A depreciation schedule for heavy equipment of Beniluz Road Construction Company was requested by your auditor soon after December 31, 2021, showing the additions, retirements, depreciation, and other data affecting the income of the company in the 4-year period 2018 to 2021, inclusive. The following data were ascertained: Balance of Equipment account, Jan. 1, 2018 Equipment No. 1 purchased Jan. 1, 2015, cost $ 50,000 Equipment No. 2 purchased July 1, 2015, cost 60,000 Equipment No. 3 purchased Jan. 1, 2016, cost 55,000 Equipment No. 4 purchased July 1, 2017, cost 70,000 Balance, Jan. 1, 2018 $235,000 The Accumulated Depreciation—Equipment account previously adjusted to January 1, 2018, and entered in the ledger, had a balance on that date of $89,000 (depreciation on the four pieces of equipment from the respective dates of purchase, based on a 5-year life, no salvage value). No charges had been made against the account before January 1, 2018. Transactions between January 1, 2018, and December 31, 2021, which were recorded in the ledger, are as follows: Jan. 1, 2019 Equipment No. 1 was sold for $6,000 cash; entry debited Cash and credited Equipments, $6,000. July 1, 2019 Equipment No. 2 was traded for a larger one (No. 5), the agreed purchase price of which was $80,000. Beniluz Road Construction Co. paid the dealer $66,000 cash on the transaction. The entry was a debit to Equipment and a credit to Cash, $66,000. The transaction has commercial substance. July 1, 2020 Equipment No. 3 was damaged in a wreck to such an extent that it was sold as junk for $500 cash. Beniluz Road Construction Co. received $12,000 from the insurance company. The entry made by the bookkeeper was a debit to Cash, $12,500, and credits to Miscellaneous Income, $500, and Equipment, $12,000. July 1, 2021 A new Equipment (No. 6) was acquired for $92,000 cash and was charged at that amount to the Equipment account. Entries for depreciation had been made by the bookkeeper at the close of each year as follows: 2018, $47,000; 2019, $42,600; 2020, $32,700; 2021, $35,400.

1.Calculate for each equipment (#1, #2, #3, #4) the annual depreciation. Total the annual depreciation for all equipment.

2.For Equipment #1, calculate the gain or loss on the sale of the equipment on Jan 1, 2019.

3. For Equipment #2 calculate its fair value at Jan 1, 2019, the date of the trade.

4. For Equipment #2, what would have been the correct entry recorded on 1/1/19?

5. For Equipment #3 calculate the gain/loss on the sale and the receipt of insurance proceeds at 7/1/2020 Please show work !

Answer 1

Page-1 Answer:- Benilug Road construction company was tequested by your auditoo soon after Dec-31 2021, Since the Life of machine is given for 5 years and their is no salvage value, hence the annual depreciation on Each equipment is calculated as - cost of machine- Salvage value Life of assets ① Annual depreciation for #1: $10,000% #2: $ 121000% #3: $ 19,0001- . . #4: $14,000/=; Total annual depreciation for all equipment: *2015:$ 16,0001- (Equipment #1 $10,000 for full year ... and equipment #2.86,000 for 6month) * 2016. $33,000/-(equipment #1 $10,000 for full year andequipment #2 $12,000 fco-full year and equipment #3 $11,000 for full year) * 2017. $40,000/-(equipment # $10,000 for full year and equipment #2.$12,000 for full year and equipment #3 $11,000 for full year equipment 4 $7,000 for half year)

page-2 *2018: $47,000/-(equipment #150,000 for full year and Equipment #2 $12,000 for full year and Equipment #3 $11,000 & Equipment #4 $14,000 for full year) *2019:$ 39,000+ (Equipment #1$6,000 for half year and equipment #2 $11,000 fco full year and equipment #4 $14,000 for full year and equipment #5 $8,000 for half year) * 2020:$35,500f Cequipment #3 $5,500 for half year and equipment #4 $141000 for full year and equipment #5 $16,000 for full year) of 20215$ 39,2001 Cequipment #4$14,000 for full year and Equipment #s$16,000 foo full year and equipment #6$9,200 foo full year.

Page 3 Ô Gain or loss on the sale of Equipment: Since the Equipment #1 was perochased on Jan al 2015 of $50,000/- the accumulated depreciation upto Janal, 2019 is $40,000/- The machine value as Janul 2019 is $19000f The machine was sold on Janul 2019 for $6,000. Hence the Loss on the sale of equipment on Jani 2019 is $4,1000% C$10,000-$6,000) © fair value at Jan-1,2019 :- The equipment #2 was purchased on Julyat 2015 of $60,0001-, equipment no-2 was toaded for equipment #5 at agreed purchase price of $80,000 Since Beniluz road concotruction Daid the dealer $66,000 cash on the above transction. The fair value at Jani 2019 is $ 14,000 (cost of equipment #5 Yery $80,00of amount paid in cash for equipment #5 f.e.$66000 = $141000)

Page-4 ☺ Entoy recorded on 1/1/199- Accumulated depreciation Ale 06$ 48,000|-| Equipment no. 5 Als Do $80,000/- . To cash Ale co $ 66,000/- To equipment no.2 Alc 66$60,000/- To gain on exchange of equipment al co. $2,000/- © Gain I loss on the sale and the receipt of insurance proceeds: Since the equipment #3 was puschased on Janul 2016 of $55,000/- the accumulated depreciation upto of July 2020 is $49,50of it was sold on junk foo $500 cash. Beniluz ocad construction received $ 12,000 from the insurance company. Hence the gain on the sale of equipment on Janri 2019 is $7,000/- ($12,500—$ 5,5001-) - x -