You are engaged in the audit of Willy Company and have been charged to review th
ID: 2467169 • 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.
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
2,000
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
2,000
Explanation / Answer
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. $ $ New Building Account………………………Dr 81000 To Repairs and Maintainance account 81000 (Being Painting to the new addition to the office it is capitalised and amount already debited to repairs and maintaiance account was credited) 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 Perimeter Fence Account…………………Dr 68400 To Repairs and Maintainance account 68400 (Being the perimeter fence lasts for 10 years it will be written off in ten years. So 9 years amount was credited from repairs and maintaiance account this year) The parking lot is resurfaced every 8 years. Parking lot account………………….Dr 205625 To Repairs and Maintainance account 29375 (Beinf the Parking lot lasts for 8 years it will be written off in 8 years. So 7 years amount will be credited from Repairs and maintainance account) 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. Delivery Truck Account………………..Dr 4300 To Repairs and Maintainance account 4300 (Being the new engine extended the life of the truck by another 3 years it is capitalised as an addition to the truck and credited the repairs and maintaiance account)
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