King Donovan Resources Group has been in its plant facility for 15 years. Althou
ID: 2454380 • Letter: K
Question
King Donovan Resources Group has been in its plant facility for 15 years. Although the plant is quite functional, numerous repair costs are incurred to maintain it in sound working order. The company’s plant asset book value is currently $800,000, as indicated below.
$1,200,000
400,000
$800,000
During the current year, the following expenditures were made to the plant facility.
Indicate how each of these transactions would be recorded in the accounting records
$1,200,000
Accumulated depreciation400,000
Book value$800,000
Explanation / Answer
Answer:(a)
Plant (+A) $270000
To Cash (-A)/Notes Payable (+L) $ 270000
When it is an addition there is no present major accounting problem, companies capilatlize any addition to plant assets because a new asset is created.
(b) Improvement Expense (+E) $ 23000
To Cash (-A) $ 23000
Improvements, if they do not make a significant difference in future service, then improvements are expensed, not capitalized.
(c) Plant Asset (Roof) (+A) 61000
Accumulated Dep (-XA) 19000
Loss on Disposal (-E) 41000
To Plant Asset (-A) 60000
To Cash (-A) 61000
There is a replacement of a known carrying value, so the old asset needs to be written off, and the new asset needs to be acknowledged.
(d) Repair Expense (+E) 22000
To Cash (-A) 22000
Has to be expensed, cannot capitalize because the carrying value of the old system is unknown and the repair does not extend the life of the system.
(e) Accumulated Depreciation (-XA) 47000
To Cash (-A) 47000
The carrying value of the old structure is unknown, however, we know the new repairs added extension to the life of the structure. Therefore this repair can reduce accumulated depreciaiton.
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