Solich Sandwich Shop had the following long-term asset balances as of December 3
ID: 2558751 • Letter: S
Question
Solich Sandwich Shop had the following long-term asset balances as of December 31, 2018:
Solich purchased all the assets at the beginning of 2016 (3 years ago). The building is depreciated over a 20-year service life using the double-declining-balance method and estimating no residual value. The equipment is depreciated over a 8-year useful life using the straight-line method with an estimated residual value of $12,000. The patent is estimated to have a five-year service life with no residual value and is amortized using the straight-line method. Depreciation and amortization have been recorded for 2016 and 2017.
1. For the year ended December 31, 2018, record depreciation expense for buildings and equipment. Land is not depreciated. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)
2. For the year ended December 31, 2018, record amortization expense for the patent. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)
3. Calculate the book value for each of the four long-term assets at December 31, 2018.
New Morning Bakery is in the process of closing its operations. It sold its two-year-old bakery ovens to Great Harvest Bakery for $550,000. The ovens originally cost $745,000, had an estimated service life of 10 years, and an estimated residual value of $45,000. New Morning Bakery uses the straight-line depreciation method for all equipment.
4. Calculate the balance in the accumulated depreciation account at the end of the second year.
5. Calculate the book value of the ovens at the end of the second year.
6. What is the gain or loss on the sale of the ovens at the end of the second year?
7. Record the sale of the ovens at the end of the second year. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)
Cost Accumulated Depreciation Book Value Land $ 78,000 ? $ 78,000 Building 443,000 $(84,170 ) 358,830 Equipment 198,400 (46,600 ) 151,800 Patent 165,000 (66,000 ) 99,000
Explanation / Answer
Answer
Cost
Salvage Value
Depreciable Base
Life
Year 1
Year 2
Accumulated Depreciation till 31 Dec 2017 [given]
Year 3 [2018]
Book Value at end of 31 Dec, 2018
Land
78000
N/A
78000
N/A
0
0
0
0
78000
Building
443000
Nil
443000
20
44300
39870
84170
35883
322947
Equipment
198400
12000
186400
8
23300
23300
46600
23300
128500
Patent
165000
Nil
165000
5
33000
33000
66000
33000
66000
Journal Entry
Date
General Journal
Debit
Credit
31 Dec 2018 [answer 1]
Depreciation expenses
59183
Accumulated Depreciation-Building
35883
Accumulated Depreciation-Equipment
23300
31 Dec 2018 [answer 2]
Amortisation expense
33000
Accumulated Depreciation-patent
33000
Answer
Cost
Accumulated Depreciation till 31st Dec 2018
Book Value 31 Dec 2018
Land
$ 78,000.00
$ -
$ 78,000.00
Building
$ 4,43,000.00
$ (1,20,053.00)
$ 3,22,947.00
Equipment
$ 1,98,400.00
$ (69,900.00)
$ 1,28,500.00
Patent
$ 1,65,000.00
$ (99,000.00)
$ 66,000.00
Cost
745000
Salvage Value
45000
Depreciable base
700000
Life
10 years
Annual Depreciation
70000
4. Accumulated Depreciation balance at the end of 2nd year =70000 x 2 = $140,000
Cost
745000
(-) Accumulated Depreciation
140000
5. Book Value at the end of 2nd year
$605000
Book Value at the time of sale
605000
(-) Sold for
550000
6. Loss on Sale
$55000
Debit
Credit
Cash
$ 5,50,000.00
Accumulated Depreciation
$ 1,40,000.00
Loss on Sale
$ 55,000.00
Equipments
$ 7,45,000.00
(sale of asset at the end of second year)
Cost
Salvage Value
Depreciable Base
Life
Year 1
Year 2
Accumulated Depreciation till 31 Dec 2017 [given]
Year 3 [2018]
Book Value at end of 31 Dec, 2018
Land
78000
N/A
78000
N/A
0
0
0
0
78000
Building
443000
Nil
443000
20
44300
39870
84170
35883
322947
Equipment
198400
12000
186400
8
23300
23300
46600
23300
128500
Patent
165000
Nil
165000
5
33000
33000
66000
33000
66000
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