DynaChrome Bumpers bought two acres of land with an old office building on it th
ID: 2544144 • Letter: D
Question
DynaChrome Bumpers bought two acres of land with an old office building on it that was deemed unusable. The cost was $480,000 of which DynaChrome paid $80,000 in cash as a down payment and signed a 7% mortgage for the remainder DynaChrome immediately had the old building razed at a net cost of $8,700 and sold the salvaged materials for $2,200. Attorneys were paid $1,100 in connection with the purchase. The architect's fee for drawing building plans for the new building cost $6,800. DynaChrome paid $3,100 in connection with permits and zoning variances necessary prior to construction of the new building. DynaChrome paid the contractor $1,420,000 for construction of the new building, along with $42,000 for a parking lot and necessary walkways and driveways. A. At what amount should the land be recorded? B. At what amount should the new office building be recorded? On July 1, 2014, Winslow Enterprises sold equipment with an original cost of $86,000 for $33,000. The equipment was purchased January 1, 2011, and was depreciated using the declining-balance method over a five-year useful life with a $9,000 salvage value. Prepare the journal entries required to record the sale of the equipment. (rounded to the nearest dollar) 2.Explanation / Answer
DynaChrome Bumpers
Cost of land
$480,000
Add: cost of razing old building
$8,700
value of salvaged materials
($2,200)
$6,500
Add: Attorney fee
$1,100
Cost of land
$487,600
architect's fees
$6,800
Permits
$3,100
Construction cost
$1,420,000
Less: cost of parking lot and driveways
$42,000
1,378,000
$1,387,900
Winslow Enterprises
Journal entries to record the sale of the equipment:
Date
Account Titles and Explanation
Debit
Credit
1-Jul-14
Cash
$33,000
Accumulate Depreciation
$71,139
Equipment
$86,000
Gain on sale of equipment
$18,139
(To record sale of equipment and gain on sale of equipment)
Workings –
Cost of equipment $86,000
Useful life 5 years
Salvage value = $9,000
Date of purchase January 1, 2011
Date of sale July 1, 2014
Method of depreciation - double declining balance method
Depreciation rate = 2 x 1/5 = 40%
End of year
Depreciation expense
accumulated depreciation
book value
2011
$34,400
$34,400
$51,600
2012
$20,640
55,040
$30,960
2013
$12,384
$67,424
$18,576
1-Jul-14
$3,715
$71,139
$14,861
Book value at date of sale = $14,861
Sale proceeds = $33,000
Gain on sale = $18,139
Cost of land
$480,000
Add: cost of razing old building
$8,700
value of salvaged materials
($2,200)
$6,500
Add: Attorney fee
$1,100
Cost of land
$487,600
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