The following transactions and adjusting entries were completed by a local deliv

Question

The following transactions and adjusting entries were completed by a local delivery company called Fast Delivery. The company uses straight-line depreciation for delivery vehicles, double-declining-balance depreciation for buildings, and straight-line amortization for franchise rights Paid $173,000 cash to purchase a small warehouse building near the airport. The building has an estimated life of 20 years and a residual value of 53,300 Paid $38,000 cash to purchase a delivery van. The van has an estimated useful life of five years and a residual value of S7,600. Paid $300 cash to paint a small office in the warehouse building Paid $100 cash to get the oil changed in the delivery van Paid $93,000 cash to UPS to begin operating Fast Delivery business as a franchise using the name The UPS Store. This franchise right expires in five years Recorded depreciation and amortization on the delivery van, warehouse building and franchise right. Sold the warehouse building for S138,000 cash. (Record the depreciation on the building prior to recording its disposal.) Recorded depreciation on the delivery van and amortization on the franchise right. Determined that the franchise right was not impaired in value. January 2, 2015 July 1, 2015 October 2,2015 October 13, 2015 December 1, 2015 December 31, 2015 June December 31, 2016 30, 2018 Required Prepare the journal entries required on each of the above dates. (f no entry is required for a transaction event, select "No Journal Entry Required" in the first account field. Do not round intermediate calculations.)

Explanation / Answer

Fast Delivery

Journal entries to record the transactions and adjusting entries:

Date

Account Ttiles and Explanation

Debit

Credit

2-Jan-15

Building

$173,000

Cash

$173,000

(To record the purchase of a warehouse building)

1-Jul-15

Delivery Van

$38,000

Cash

$38,000

(To record the purchase of a delivery van)

2-Oct-15

Repairs and Maintenance Expense

$300

Cash

$300

(Payment made towards painting a room in the building)

13-Oct-15

Repairs and Maintenance Expense

$100

Cash

$100

(To record payment towards oil change in delivery van)

1-Dec-15

Franchise

$93,000

Cash

$93,000

(To record payment made towards Franchise)

31-Dec-15

Depreciation Expense - Delivery Van

$3,040

Accumulated Depreciation - Delivery Van

$3,040

(To record depreciation expense on Delivery van for 6 months)

31-Dec-15

Depreciation expense - Building

$17,300

Accumulated Depreciation - Building

$17,300

(To record depreciation expense on Building))

31-Dec-15

Amortization Expense

$1,550

Accumulated Amortization - Franchise

$1,550

(To record amortization expense on Franchise for 1 month)

30-Jun-16

Depreciation Expense - Building

$7,785

Accumulated Depreciation - Building

$7,785

(To record 6 months depreciation on building)

30-Jun-16

Cash

$138,000

Loss on Sale of Building

$9,915

Accumulated Depreciation - Building

$25,085

Building

$173,000

(To record sale of building and loss on sale of building)

31-Dec-16

Depreciation Expense - Delivery Van

$6,080

Accumulated Depreciation - Delivery Van

$6,080

(To record depreciation expense on delivery van)

31-Dec-16

Amortization Expense - Franchise

$18,600

Amortization - Franchise

$18,600

(To record amortization expense on Franchise for the year 2016)

Notes:

Depreciation and sale of Building –

Depreciation expense for 2015 –

Based on double-declining balance method,

Depreciation rate = 2 x 1/20 years = 10%

Depreciation expense for 2015 = 173,000 x 10% = $17,300

Depreciation expense – June 30, 2016 = (173,000 – 17,300) x 10% x 6/12 = $7,785

Book value of building on the date of sale,

Book value = cost – accumulated depreciation

= 173,000 – (17,300 + 7,785) = $147,915

Gain/(loss) on sale of building = sale proceeds – book value

            = 138,000 - $147,915 = -$9,915

Depreciation expense for 2015 = (38,000 -7,600) x 1/5 x 6/12 = $3,040

Depreciation expense for 2016           = (38,000 – 7,600) x 1/5 = $6,080

Amortization expense on Franchise –

For year 2015,

The franchise wass bought in December, so the amortization expense for 2015 is provided for only 1 month.

= 93,000 x 1/5 x 1/12 = $1,550

Amortization expense for 2016 –

93,000 x 1/5 = $18,600

Note: The effect of franchise value determined as not impaired is nil. When an intangible asset is not impaired there is no need to calculate market value and the amortization is provided as usual.

Date

Account Ttiles and Explanation

Debit

Credit

2-Jan-15

Building

$173,000

Cash

$173,000

(To record the purchase of a warehouse building)

1-Jul-15

Delivery Van

$38,000

Cash

$38,000

(To record the purchase of a delivery van)

2-Oct-15

Repairs and Maintenance Expense

$300

Cash

$300

(Payment made towards painting a room in the building)

13-Oct-15

Repairs and Maintenance Expense

$100

Cash

$100

(To record payment towards oil change in delivery van)

1-Dec-15

Franchise

$93,000

Cash

$93,000

(To record payment made towards Franchise)

31-Dec-15

Depreciation Expense - Delivery Van

$3,040

Accumulated Depreciation - Delivery Van

$3,040

(To record depreciation expense on Delivery van for 6 months)

31-Dec-15

Depreciation expense - Building

$17,300

Accumulated Depreciation - Building

$17,300

(To record depreciation expense on Building))

31-Dec-15

Amortization Expense

$1,550

Accumulated Amortization - Franchise

$1,550

(To record amortization expense on Franchise for 1 month)

30-Jun-16

Depreciation Expense - Building

$7,785

Accumulated Depreciation - Building

$7,785

(To record 6 months depreciation on building)

30-Jun-16

Cash

$138,000

Loss on Sale of Building

$9,915

Accumulated Depreciation - Building

$25,085

Building

$173,000

(To record sale of building and loss on sale of building)

31-Dec-16

Depreciation Expense - Delivery Van

$6,080

Accumulated Depreciation - Delivery Van

$6,080

(To record depreciation expense on delivery van)

31-Dec-16

Amortization Expense - Franchise

$18,600

Amortization - Franchise

$18,600

(To record amortization expense on Franchise for the year 2016)

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