On January 1, 2012, Jackson Company purchased factory equipment priced at $55,00
ID: 2375875 • Letter: O
Question
On January 1, 2012, Jackson Company purchased factory equipment priced at $55,000. Sales tax was an additional 6%, and the company spent $4,000 to install the machinery. After the company began using the machine (placed in service), there were additional costs of $800 for insurance and $1,200 for maintenance.
The estimated useful life of the machine was five years and residual value was expected to be $6,300. The equipment is expected to produce 200,000 units during its useful life.
Required:
1. At what amount should Jackson record the purchase of the machine?
$____________
What is the appropriate treatment for the maintenance and insurance?
(i.e., Are they capital or revenue expenditures? Check one. Do they belong on the income statement or the balance sheet? Check one.)
Capital expenditure ____ Balance Sheet ____
Revenue expenditure ____ Income Statement ____
2. Prepare the journal entry to record depreciation for 2012, assuming the company uses the straight-line method. .
_________________________________________________________
_________________________________________________________
Computation:
3. Compute depreciation for 2012, assuming the company uses the units of production method. The equipment produced 30,000 units in 2012.
$_____________
4. Compute depreciation for 2012 AND 2013, assuming the company uses the double-declining balance method. .
2012: $_____________
2013: $_____________
5. Assume that the company chose straight-line (as you did in #2). On March 31, 2014, Jackson sold the equipment for $35,000 in cash. Notice that the sale did not occur on December 31!
a. What was the accumulated depreciation of this equipment on the date
of sale?
$_____________
b. What was the book value on the date of sale?
$_____________
c. What was the gain/loss on sale?
Gain Loss $______________
(Circle one)
Prepare the journal entry to record the sale:
_______________________________________________________________________
_______________________________________________________________________
_______________________________________________________________________
_______________________________________________________________________
Explanation / Answer
1. $58,300 ($55,000*1.06)
The Maintenance and Insurance expenses should be Revenue Expenditures and they should appear on the Income Statement.
2. Depreciation Expense 10400
Accumulated Depr. 10400 (This is 58,300-6,300 divided by 5)
3. Depreciation Expense 7800
Accumulated Depr. 7800 (This is 58,300-6,300 times 30,000/200,000)
4. 2012 Depreciation Expense 20,800
Accumulated Depr. 20,800 (This is 58,600-6,300 times 40% or double the percentage for part 2)
2013 Depreciation Expense 12,480
Accumulated Depr. 12,480 (This is the 52,000 total to be depreciated MINUS the Depr. from last
year TIMES 40% again)
5.
a) $23,400 (This is the 10,400 from one year in part 2 PLUS the proportional amount for Jan 1 - March 31)
b) $34,900 (This is the 58,300 we started with minus 23,400: the amount in the Acc Depr. Contra Account)
c) $100 Gain
Cash 35,000
Acc Depr. 23,400
Equipment 58,300
GAIN 100
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