1. A company purchased land for $83000 cash. Real estate brokers\' commission wa
ID: 2488798 • Letter: 1
Question
1.
A company purchased land for $83000 cash. Real estate brokers' commission was $3700 and $6500 was spent for demolishing an old building on the land before construction of a new building could start. Proceeds from salvage of the demolished building was $1900. Under the historical cost principle, the cost of land would be recorded at
2.
A machine was purchased for $78000 and it was estimated to have a $6000 salvage value at the end of its useful life. Monthly depreciation expense of $1110 was recorded using the straight-line method. The annual depreciation rate is
3.
Compton Inc. made a $500 ordinary repair to a piece of equipment. Compton's accountant debited this amount to the asset account, Equipment and credited Cash. Was this the correct entry and if not, why not?
1. No, the correct entry would be a debit to Cash and a credit to Maintenance and Repairs Expense.
2. No, the correct entry would be a debit to Maintenance and Repairs Expense and a credit to Cash.
3. No, the correct entry would be a debit to Service Revenue and a credit to Cash.
4. Yes, this was the correct entry
4.
In 2014, Bridgeport Corp. has plant equipment that originally cost $200000 and has accumulated depreciation of $54000. A new processing technique has rendered the equipment obsolete, so it is retired. Which of the following entries should Bridgeport use to record the retirement of the equipment?
1.Loss on Disposal of Plant Assets
146000
Accumulated Depreciation - Equipment
146000
2.Accumulated Depreciation - Equipment
54000
Loss on Disposal of Plant Assets
146000
Equipment
200000
3.Plant Equipment
200000
Accumulated Depreciation - Equipment
54000
Loss on Disposal of Plant Assets
146000
4,Loss on Disposal of Plant Assets
146000
Equipment
146000
1. No, the correct entry would be a debit to Cash and a credit to Maintenance and Repairs Expense.
Explanation / Answer
Ans 1 Cost of Land=Cost of Purchases+Broker commission+Cost to demolish old building-salvage value of demolished building Cost of land=$83000+3700+6500-1900 91300 Ans Ans 2 Depreciation= Cost-Salvage value/No.of years 1110*12=(78000-6000)/N No. of useful year of life 72000/1110*12 5.41 years So SLM Rate=1/5.41*100 18.5 % Ans 3 2. No, the correct entry would be a debit to Maintenance and Repairs Expense and a credit to Cash As it is a normal repair so it is revenue expense it should be debited to Maintaience and Repair Expenses not equipment Ans 4 2.Accumulated Depreciation - Equipment 54000 Loss on Disposal of Plant Assets 146000 Equipment 200000 Before disposal the entry was there was a debit in equipment by $200000 and crediby $54000 for acc. Dep After disposal equipment retired so the cost is to be credited tha Accumulated depriciation should be debited so it comes at book value now there has been loss on disposal of asset (200000-54000)=$146000 hence debited
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