Question

McClain Company incurred the following expenditures during 2016: Apr. 9 The air conditioning system in the old manufacturing facility was replaced for $83,000. The old air conditioning system had a cost of $74,000 and a book value of $2,000. The old air conditioning system had no scrap value. June 29 Annual maintenance of $38,000 was performed. Sept. 12 The roof of the old manufacturing facility is replaced at a cost of $65,000. This expenditure substantially extended the life of the facility. Dec. 28 A new wing was added to the manufacturing facility at a cost of $275,000. This expenditure substantially increased the productive capacity of the plant. Required: 1. Prepare journal entries to record McClain’s expenditures for 2016. 2. Next Level What is the effect on the financial statements if management had improperly accounted for the: a. addition of the new wing to the manufacturing facility b. annual maintenance expenditures Prepare journal entries to record McClain’s expenditures for 2016. Additional Instructions How does grading work? PAGE 10 GENERAL JOURNAL Score: 130/137 DATE ACCOUNT TITLE POST. REF. DEBIT CREDIT Apr. 9 Air Conditioning System 83,000.00 Loss on Disposal of Property, Plant, and Equipment 2,000.00 Air Conditioning System 74,000.00 Accumulated Depreciation 65,000.00 65,000.00 Cash 38,000.00 65,000.00 Jun. 29 Repair and Maintenance Expense 38,000.00 Cash 38,000.00 Sep. 12 Accumulated Depreciation 65,000.00 Cash 65,000.00 Dec. 28 Building 275,000.00 Cash 275,000.00

Answer 1

McClain Company Req 1 Journal entries Date Account Debit CreditCalculation 9-Apr Air Conditioning System - New 83,000 Cash 83,000 Accumulated Depreciation-Air Conditioning System - Old Loss on Disposal of Property, Plant, and Equipment Air Conditioning System Old 72,000 2,000 74000-2000 74,000 29-Jun Repair and Maintenance Expense 38,000 Cash 38,000 12-Sep Building 65,000 Cash 65,000 28-Dec Building 275,000 Cash 275,000 Effect on financial statements if management had improperly accounted a. addition of the new wing to the manufacturing facility If new wing had been improperly expensed off instead of capitalised, then Income would have been understated by 275,000 Asset would have been understated by 275,000 Req2 b. annual maintenance expenditures If annual maintenance expenses had been improperly capitalised instead of expensed off, ther Income would have been overstated by 38,000 Asset would have been overstated by 38,000