Question

Cullumber purchased land and a building on April for 398,400. The company paid 123,600 in cash and signed a 5% note payable

Problem 9-6A Cullumber Company purchased land and a building on April 1, 2019, for $398,400. The company paid $123,600 in cash and signed a 5 % note payable for the balance. At that time, it was estimated that the land was worth $159,000 and the building, $239,400. The building was estimated to have a 25-year useful life with a $42,000 residual value. The company has a December 31 year end, prepares adjusting entries annually, and uses the straight-line method for buildings; depreciation is calculated to the nearest month. The following are related transactions and adjustments during the next three years. 2019 Recorded annual depreciation. Paid the interest owing on the note payable Dec. 31 31 2020 Paid $295 to have the furnace cleaned and serviced Recorded annual depreciation. Paid the interest owing on the note payable. Feb. 17 Dec. 31 31 The land and building were tested for impairment. The land had a recoverable amount of $128,600 and the building, $249,000. 31 2021 Sold the land and building for $338,000 cash: $124,000 for the land and $214,000 for the building Jan. 31 Feb. 1 Paid the note payable and interest owing.

Answer 1

2020 Dec.31 7,896 Depreciation expense [(239400-42000)/25] Accumulated depreciation (To record depreciation) Dec.31 13,740 Interest expense (274800*59 Cash (To record interest) An asset is said to be impaired when its carrying amount exceeds the recoverable amount No depreciation is charged on land, therefore, its carrying value on Dec.31 would be $1,59,000. It is given that the recoverable amount of land is $1,28,600, thus resulting in an impairment loss of $30,400. The journal entry will be- Dec.31 30,400 Impairment expense Land 30,400 There will be no impairment in case of building as its carrying amount is more than the recoverable amount as shown below. Carrying -mouni (239400 - 5922 - 7896) 2,25,582 Recolerable amount 2,49,000

As a result, no journal entry will be passed for recognising the impairment loss on building. 2021 Jan.31 658 Depreciation expense [(239400-42000)/25/12] Accumulated depreciation (To record depreciation) 658 3,38,000 14,476 Jan.31 Cash Accumulated depreciation [5922 + 7896 + 658) Loss on sale of land & building [(128600-124000) + (239400-14476-214000)] Land Building cs Scario record disposal) Camse 15,524 1,28,600 2,39,400

Feb.1 2,74,800 Notes payable Interest expense (274800*5%/12) Cash (To record payment of note) 1,145 2,75,945 In case, the land & building are sold on October 31, 2021, the journal entries would be Oct.31 6580 Depreciation expense [(239400-42000)/25/12*10] Accumulated depreciation (To record depreciation) 6580 Oct.31 4,18,000 20,398 Cash Accumulated depreciation (5922 + 7896 + 6580] Land Building Profit on sale of land [(169000-128600) + (249000- (239400-20398))] (To record disposal) 1,28,600 2,39,400 70,398