You are engaged in the audit of Willy Company and have been charged to review th
ID: 2466000 • Letter: Y
Question
You are engaged in the audit of Willy Company and have been charged to review the repairs and maintenance account. You find the following entries in that account.
You investigate and find the following additional information.
1. The firm shuts down production twice each year while Nilly Company comes in and services all production equipment.
2. The company originally contracted with Wight Painters to paint a new addition to the office building for $81,000. Wight then offered to paint the entire building for an additional $81,000.
3. The perimeter fence was heavily damaged by strong spring winds. In reconstructing the fence, much of the material had to be replaced, but it should last another 10years.
4. The parking lot is resurfaced every 8 years.
5. The new engine does not allow the delivery truck to do anything that it could not do before the engine needed replacement. It did, however, extend the life of the truck by three years.
6. The company sold some old equipment and recorded a loss of $600 on the sale. It paid Wicopy Co. $8,500 to remove the old equipment and to build a stand for the new equipment. It allocated 80% of the cost to building the new stand and allocated 80% of the cost to the new equipment. The other 20% ($1,700) was attributed to removal of the old equipment.
Service lives for Willy Company assets are 30 years for buildings and 10 years for equipment.
Prepare any adjusting entry or entries that you think are necessary to correct the accounts of Willy Company. Explain why each of the entries are required.
DATE DESCRIPTION AMOUNT 1/3 Office painting $162,000 2/15 Semi-annual machine maintenance $27,000 4/1 Rebuild of perimeter fence 76,000 6/17 Resurface parking lot 235,000 8/22 Semi-annual machine maintenance 128,000 9/1 Engine replace in delivery truck 4,300 12/28 Removal of old machine 2,000Explanation / Answer
Willy Company
The repair and maintenance account of the company requires the following changes:
1.Removal of old equipment: The removal of old equipment will not be considered in repairs and maintenance account as it is related selling and removal of asset which is not a part of repairs and maintenance.
2. Repalcement of engine in delivery truck: The replacement of engine in the delivery truck of $4300 will not be included in the repairs and maintenance account because it has extented the life of the truck by three years and any expense which increases the useful life of the property is treated as a capital expense.
3.Cost of painting a new addtion to the office building: The cost of painting the new addition to office building will not be considered in the repairs and maintenance account because any addition or upgrades to property are treated as a capital expense
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.