PA9-4 Recording Transactions and Adjustments for Tangible and Intangible Assets
ID: 2400496 • Letter: P
Question
PA9-4 Recording Transactions and Adjustments for Tangible and Intangible Assets [LO 9-1, LO 9-2, LO 9-3, LO 9-4, LO 9-5, LO 9- The following transactions and adjusting entries were completed by a paper-packaging company called Gravure Graphics International during 2015 and 2016. The company uses straight-line depreciation for trucks and other vehicles, double-declining-balance depreciation for buildings, and straight-line amortization for patents. 2,2015 3, 2015 Paid $99,000 cash to purchase storage shed components. Paid $2,000 cash to have the storage shed erected. The storage shed has an January January Apri May estimated life of 10 years and a residual value of $5,000 1,2015 Paid $45,000 cash to purchase a pickup truck for use in the business. The truck has an estimated useful life of five years and a residual value of $3,000 Paid $900 cash for repairs to the pickup truck. Paid $16,000 cash to purchase patent rights on a new paper bag manufacturing process. The patent is estimated to have a remaining useful life of five years Recorded depreciation and amortization on the pickup truck, storage shed, and 13, 2015 1, 2015 July December 31, 2015 June 30, 2016 December 31, 2016 Sold the pickup truck for $38,000 cash. (Record the depreciation on the truck prior to recording its disposal.) Recorded depreciation on the storage shed. Determined that the patent was impaired and wrote off its remaining book value (i.e., wrote down the book value to zero). Required: Prepare the journal entries required on each of the above dates. (If no entry is required for a transactionlevent, select"No Journal Entry Required" in the first account field. Do not round intermediate calculations.)Explanation / Answer
No
Date
General Journal
Debit
Credit
6
.December 31 2015
Depreciation Expense
$ 26,500.00
Amortization Expense
$ 1,600.00
Accumulated Depreciation-Building
$ 20,200.00
Accumulated Depreciation-Equipment
$ 6,300.00
Accumulated Amortization -Patent
$ 1,600.00
(depreciation on equipment for 9 months, Building for 1 year and patent amortization for 6 months)
7
.June 30 2016
Depreciation Expense
$ 4,200.00
Accumulated Depreciation-Equipment
$ 4,200.00
(depreciation for 6 months)
8
.June 30 2016
Cash
$ 38,000.00
Accumulated Depreciation-Equipment
$ 10,500.00
Equipment
$ 45,000.00
Gain on Disposal
$ 3,500.00
(Equipment sold)
9
.December 31 2016
Depreciation Expense
$ 16,160.00
Amortization Expense
$ 3,200.00
Accumulated Depreciation-Building
$ 16,160.00
Accumulated Amortization -Patent
$ 3,200.00
(depreciation on Building and Amortization of Patent)
10
.December 31 2016
Impairment loss
$ 11,200.00
Accumulated Amortization -Patent
$ 4,800.00
Patent
$ 16,000.00
(Impairment loss on patent recorded)
Notes Journal entries from 1-5 were correct.
Depreciation schedule
A
Cost
$ 101,000.00
B
Residual Value
$ 5,000.00
C=A - B
Depreciable base
$ 96,000.00
D
Life [in years]
10
E=C/D
Annual SLM depreciation
$ 9,600.00
F=E/C
SLM Rate
10.00%
G=F x 2
DDB Rate
20.00%
Year
Beginning Book Value
Depreciation rate
Depreciation expense
Ending Book Value
Accumulated Depreciation
1
$ 101,000.00
20.00%
$ 20200
$ 80,800.00
$ 20200
2
$ 80,800.00
20.00%
$ 16160
$ 64,640.00
$ 36360
A
Cost
$ 45,000.00
B
Residual Value
$ 3,000.00
C=A - B
Depreciable base
$ 42,000.00
D
Life [in years]
5
E=C/D
Annual SLM depreciation
$ 8,400.00
Year
Book Value
Depreciation expense
Ending Book Value
Accumulated Depreciation
1
$ 45,000.00
$ 6,300.00
$ 38,700.00
$ 6,300.00
2
$ 38,700.00
$ 4,200.00
$ 34,500.00
$ 10,500.00
No
Date
General Journal
Debit
Credit
6
.December 31 2015
Depreciation Expense
$ 26,500.00
Amortization Expense
$ 1,600.00
Accumulated Depreciation-Building
$ 20,200.00
Accumulated Depreciation-Equipment
$ 6,300.00
Accumulated Amortization -Patent
$ 1,600.00
(depreciation on equipment for 9 months, Building for 1 year and patent amortization for 6 months)
7
.June 30 2016
Depreciation Expense
$ 4,200.00
Accumulated Depreciation-Equipment
$ 4,200.00
(depreciation for 6 months)
8
.June 30 2016
Cash
$ 38,000.00
Accumulated Depreciation-Equipment
$ 10,500.00
Equipment
$ 45,000.00
Gain on Disposal
$ 3,500.00
(Equipment sold)
9
.December 31 2016
Depreciation Expense
$ 16,160.00
Amortization Expense
$ 3,200.00
Accumulated Depreciation-Building
$ 16,160.00
Accumulated Amortization -Patent
$ 3,200.00
(depreciation on Building and Amortization of Patent)
10
.December 31 2016
Impairment loss
$ 11,200.00
Accumulated Amortization -Patent
$ 4,800.00
Patent
$ 16,000.00
(Impairment loss on patent recorded)
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