On January 1, 2012, Jackson Company purchased factory equipment priced at $55,00

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.         At what amount should Jackson record the purchase of the machine?

            $55000+6%*55000+4000=$62,300.00

            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 Yes            Income Statement   Yes

2.         Prepare the journal entry to record depreciation for 2012, assuming the company uses the straight-line method. .

            _Depreication A/c Dr. 11200________________________________________________________

            ___To Accumulated depreciation A/c _Cr. ___11200__________________________________________________

            Computation:

(62300-6300)/5=11200

3.         Compute depreciation for 2012, assuming the company uses the units of production method. The equipment produced 30,000 units in 2012.

                                                                                                $(62300-6300)/200000*30000=$8400

4.         Compute depreciation for 2012 AND 2013, assuming the company uses the double-declining balance method. .

                                                                                    2012:              $62300*40%=24920

                                                                                    2013:              $(62300-24920)*40%=14952

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?

            $11200+11200+11200*3/12=_25200

            b. What was the book value on the date of sale?

                                                                                                            $62300-25200=37100

            c. What was the gain/loss on sale?

                                                                                  Gain   Loss    $35000-37100=(2100)

                                                                                      (Circle one)

Prepare the journal entry to record the sale:

___Bank /Cash A/c Dr.__________                   35000

___Accumulated Depreciation A/c Dr._              25200

__To Loss on sale of assets A/c____                  2100

___ To Machinery A/c                                                                   62300

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