The following transactions occurred during 2014. Assume that depreciation of 10%

Question

The following transactions occurred during 2014. Assume that depreciation of 10% per year is charged on all machinery and 5% per year on buildings, on a straight-line basis, with no estimated salvage value. Depreciation is charged for a full year on all fixed assets acquired during the year, and no depreciation is charged on fixed assets disposed of during the year.

Jan. 30 A building that cost $458,040 in 1997 is torn down to make room for a new building. The wrecking contractor was paid $17,697 and was permitted to keep all materials salvaged.

Mar. 10 Machinery that was purchased in 2007 for $55,520 is sold for $10,063 cash, f.o.b. purchaser’s plant. Freight of $1,041 is paid on the sale of this machinery.

Mar. 20 A gear breaks on a machine that cost $31,230 in 2009. The gear is replaced at a cost of $6,940. The replacement does not extend the useful life of the machine but does make the machine more efficient.

May 18 A special base installed for a machine in 2008 when the machine was purchased has to be replaced at a cost of $19,085 because of defective workmanship on the original base. The cost of the machinery was $49,274 in 2008. The cost of the base was $12,145, and this amount was charged to the Machinery account in 2008.

June 23 One of the buildings is repainted at a cost of $23,943. It had not been painted since it was constructed in 2010.

Prepare general journal entries for the transactions.

Date Account Titles and Explanations Debit Credit 1/30 3/10 3/20 5/18 6/23

Explanation / Answer

Notes:

January 30:

accumulated depreciation for 18 years (1997 and 2014 inclusive) = 5% *18 *458040=$412236

Loss on demolition of machinery = 458040 - 412236 = $45804

Mar-10

cash = cash recieved on sale of the machinery - freight expenses = =10063-1041=$9022

Accumulated depreciation = =55520*0.1*8 = 44416

loss on sale of machinery = book value + freight - sales realisattion = (55520 - 44416) - 10063 = $1041

Mar-20

As the efficiency of the machine has been increased, the cost of the gear has been capitalized

May-18

loss on disposal of old base = 12145 - accumulated depreciation = 12145 - 10%*7*12145 = 12145-8502 = $3643

Date Account Titles and Explanations Debit Credit Jan-30 demolition expense 17697 accumulated depreciation 412236 Income Summary - loss on demolition 45804 cash 17697 building 458040 10-Mar cash 9022 Freight 1041 accumulated depreciation 44416 income summary-loss on sale of machine 1041 Machinery 55520 20-Mar machinery 6940 cash 6940 May-18 Machinery 19805 accumulated depreciation 8502 Income summary - loss on disposal of the base 3643 cash 19805 Machinery -sale of old base 12145 Jun-23 repairing expense-painting 23943 cash 23943

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