(a) Record the transactions that occurred during 2018. (Credit account titles ar
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Question
(a)
Record the transactions that occurred during 2018. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Round answers to 0 decimal places, e.g. 5,275.)
Date
Account Titles and Explanation
Debit
Credit
Jan. 4, 2018
May 1, 2018
May 1, 2018
May 1, 2018
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SunlandMachining purchased an existing business on June 30, 2016. It immediately started operations and has a calendar year end. The trial balance of Sunland Machining at December 31, 2017 shows the following:Land $44,000 Building 220,000 Accumulated depreciation – building 24,000 Equipment 130,000 Accumulated depreciation – equipment 44,688 Land improvements 22,000 Accumulated depreciation - land improvements 4,703
The accounting policies chosen for the property, plant, and equipment assets and the relevant information concerning the calculation of depreciation follows.
Building Straight-line Equipment Diminishing balance - 25% Land improvements Diminishing balance - 15% rate Residual value - Building $60,000 Residual value - Equipment 10% of cost Residual value - Land Improvements 0 Useful life - Building 10 Years Useful life - Equipment 8 Years Useful life - Land Improvements 5 Years
Events and transactions for 2018 follow.
1. On January 4, 2018, Sunland replaced one of the motors on one of the larger pieces of equipment at a cost of $16,500. The cost of the old motor removed could not be determined. The replacement motor will operate using half of the electricity that was consumed by the old motor. The useful life and the residual value of all of the equipment did not change as a result of this addition. 2. On May 1, 2018, after unusual spring flooding, Sunland had to replace the parking lot, which was the only item in the land improvement account. The cost to replace was $35,000. The new parking lot is expected to have a useful life of 10 years, with no residual value.
Explanation / Answer
Date
Account Titles and Explanation
Debit
Credit
Jan. 4, 2018
Equipment A/c
16,500
To Cash/ Accounts Payable
16,500
(Although, it does not change the residual value of asset nor increases its useful life, it will still be capitalised as the motor will give benefits for more than an year. Also, its not a spare part, nor it is repairs to machine. It is a major repair. Also, the amount is significant compared to total value of equipments.)
May 1, 2018
Depreciation Exp A/c
865
To Accumulated Depreciation – Land Impr. A/c
865
(To record depreciation expense)
(Depreciation on date of scrap/sale to be provided. Depreciation on Land Improvement for 4 months on written down value(22,000-4,703=17,297) at 15% for 4 months comes to 865(17,297*15%*4/12))
May 1, 2018
Profit & Loss A/c
16,432
Accumulated Depreciation – Land Impr. A/c
5,568
To Land Improvement A/c
22,000
(To record retirement of land improvement)
(Total balance in Accumulated Depreciation - Land Impr. A/c now is 5,568(4,703+865). It will be debited to close the account and Land Improvement account will be credited to close the account, the balancing figure will be transferred to Profit & Loss A/c(Loss on disposal/scrap))
May 1, 2018
Land Improvement A/c
35,000
To Cash/ Accounts Payable
35,000
(To record costs to resurface)
(It will be capitalized, as it’s of long term nature.)
Date
Account Titles and Explanation
Debit
Credit
Jan. 4, 2018
Equipment A/c
16,500
To Cash/ Accounts Payable
16,500
(Although, it does not change the residual value of asset nor increases its useful life, it will still be capitalised as the motor will give benefits for more than an year. Also, its not a spare part, nor it is repairs to machine. It is a major repair. Also, the amount is significant compared to total value of equipments.)
May 1, 2018
Depreciation Exp A/c
865
To Accumulated Depreciation – Land Impr. A/c
865
(To record depreciation expense)
(Depreciation on date of scrap/sale to be provided. Depreciation on Land Improvement for 4 months on written down value(22,000-4,703=17,297) at 15% for 4 months comes to 865(17,297*15%*4/12))
May 1, 2018
Profit & Loss A/c
16,432
Accumulated Depreciation – Land Impr. A/c
5,568
To Land Improvement A/c
22,000
(To record retirement of land improvement)
(Total balance in Accumulated Depreciation - Land Impr. A/c now is 5,568(4,703+865). It will be debited to close the account and Land Improvement account will be credited to close the account, the balancing figure will be transferred to Profit & Loss A/c(Loss on disposal/scrap))
May 1, 2018
Land Improvement A/c
35,000
To Cash/ Accounts Payable
35,000
(To record costs to resurface)
(It will be capitalized, as it’s of long term nature.)
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