A city government adds street lights within its boundaries at a total cost of $3

Question

A city government adds street lights within its boundaries at a total cost of $300,000. The lights should burn for at least 10 years but can last significantly longer if maintained properly. The city sets up a system to monitor these lights with the goal that 97 percent will be working at any one time. During the year, the city spends $48,000 to clean and repair the lights so that they are working according to the specified conditions. However, it spends another $78,000 to construct lights for several new streets in the city.

Prepare the entries assuming infrastructure assets are capitalized with depreciation recorded. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

Prepare the entries assuming infrastructure assets capitalized with government using the modified approach. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

A city government adds street lights within its boundaries at a total cost of $300,000. The lights should burn for at least 10 years but can last significantly longer if maintained properly. The city sets up a system to monitor these lights with the goal that 97 percent will be working at any one time. During the year, the city spends $48,000 to clean and repair the lights so that they are working according to the specified conditions. However, it spends another $78,000 to construct lights for several new streets in the city.

Explanation / Answer

Under Depreciation Method a Account Title Dr $ Cr $ Street Lights (InfrastructureAsset)                         300,000 Accounts Payable              300,000 Manitenance Expense                            48,000 Accounts Payable 48000 (reapir and cleaning expense expensed out considering normal maintenance expense not extending life of asset) Street Lights (InfrastructureAsset)                            78,000 Accounts Payable             78,000.0 Assuming street light fitted in the beginning of year Using straight line method for 10 years Accumulated Depreciation-Street Lights                 37,800 depreciation Expense                            37,800 Under Modifed Approach Account Title Dr $ Cr $ Street Lights (InfrastructureAsset)                         300,000 Accounts Payable              300,000 Street Lights (InfrastructureAsset)                            78,000 Accounts Payable             78,000.0 Manitenance Expense                            48,000 Accounts Payable 48,000 No depreciation calculated under modified approach

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