Question t January 1, 2017, Pharoah Company reported the following property, pla

Question

Question t January 1, 2017, Pharoah Company reported the following property, plant, and equipment accounts: Accumulated depreciation-equipment 54,250,000 Buildings 150,250,000 Land The company uses straight-line depreciation for buildings and equipment, its year-end is December 31, and it makes adjusting entries annually. The buildings are estimated to have a 40-year useful life and no salvage value; the equipment is estimated to have a 10-year useful life and no salvage value. During 2017, the following selected transactions occurred: Apr 1 Purchased land or $4.40 million paid $1.100 million cash and issued a 3 year, 6% note payable for the balance Interest on the nate is payable annually each April 1 May1 Sold equipment for $350,000 cash. The equipment cost $2.64 milion when criginally purchased on January 1, 2009. June 1 50ld land for $5.40 million. Received and accepted a 3-year, 5% note for the balance. The land cost $1.50 million when purchased on June 1, 2011, Interest on the note is due annually each June 1. July 1 Purchased equipment for $2.4D millian cash. Det. 31 Retired equipment that cost $1 million when purchased on December 31, 2007. No proceeds were received. oth balance. e $500,000 cash

Explanation / Answer

Depreciation expense for the year for equipment is calculated as below:

While calculating depreciation on Net WDV we have assumed that the balance remaining life of Net opening WDV is 10 years in the absence of information.

Further the value of equipment in financial statement of PHAROAH COMPANY would appear as provided below:

The computation of Interest revenue would be as follows:

Since we have notes receivable due on June 1, we would calculate interest upto 31st December i.e. for 10 months which amounts to $ 200000. Thus the correct entry would be :

Interest Receivable Dr 200000

To, Interest Revenue 200000

Equipment Cost Accumulated WDV Depreciation Depreciation for the year Opening Balance 150250000 54250000 96000000 (-)Sold on May 1 2640000 2200000 440000 88000 (-) Sold on Dec 31 1000000 900000 100000 100000 Net opening WDV 146610000 51150000 95460000 9546000 Purchase on July 1 2400000 2400000 180000 Total 149010000 51150000 97860000 9914000

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