Use the above information for the following problems: Jan. 1 Purchased office eq

Question

Use the above information for the following problems:

Jan. 1 Purchased office equipment, $115,000. Paid $78,000 cash and financed the remainder with a note payable Acquired land and communication equipment in a lump-sum purchase. Total cost was $410,000 paid in cash. An independent appraisal valued the land at $322,875 and the communication equipment at $107,625 Sold a building that cost $540,000 (accumulated depreciation of $275,000 through December 31 of the preceding year). Whitney Plumb Associates received $390,000 cash from the sale of the building. Depreciation is computed on a straight-line basis The building has a 40-year useful life and a residual value of $75,000 Recorded depreciation as follows Communication equipment is depreciated by the straight-line method over a five-year life with zero residual value Apr. 1 Sep. 1 Dec. 31 Office equipment is depreciated using the double-declining-balance method over five years with a $5,000 residual value

Explanation / Answer

Working:

1. Total appraised value of land and communication equipment = $322875 + $107625 = $430500

Land: $410000 x $322875/$430500 = $307500

Communication equipment = $410000 x $107625/$430500 = $102500

2. Depreciation on buildings:

Depreciable cost = $540000 - $75000 = $465000

Annual depreciation = $465000/40 years = $11625

Depreciation on buildings up to Sep. 1 = $11625 x 8/12 = $7750

3. Depreciation on communication equipment = $102500 x 9/60 = $15375

4. Depreciation on office equipment:

Straightline depreciation rate = 100%/5 years = 20%

Double-declining-balance method = 2 x 20% = 40%

Depreciation on office equipment = $115000 x 40% = $46000

Date Accounts and Explanation Debit Credit Jan. 1 Office equipment 115000 Cash 78000 Notes payable 37000 (To record purchase of office equipment) Apr. 1 Land 307500 Communication equipment 102500 Cash 410000 (To record purchase of land and communication equipment) Sep. 1 Depreciation expense 7750 Accumulated depreciation-buildings 7750 (To record depreciation expense on buildings) Sep. 1 Cash 390000 Accumulated depreciation-buildings ($275000 + $7750) 282750 Buildings 540000 Gain on disposal 132750 (To record sale of building) Dec. 31 Depreciation expense 15375 Accumulated depreciation-communication equipment 15375 (To record depreciation expense on communication equipment) Dec. 31 Depreciation expense 46000 Accumulated depreciation-office equipment 46000 (To record depreciation expense on office equipment)

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