Chapter 8 Mar 12-18 eBook Cost of Assets, Subsequent Book Values, and Balance Sh

Question

Chapter 8 Mar 12-18 eBook Cost of Assets, Subsequent Book Values, and Balance Sheet Presentation The follawing events took place at Pete's Painting Company during 2017: b. On January 1, he purchased several items at an auction for $2.400. These items had fair market values as follows: a. on lanuary 1, Pete bought a used truck for $14,000. He added a toal chesat and side racks for ladders for s4,a0. The truek in oxpected to last four yearts and then be sold for $e00, Pete vses traiht-inie agrcdation. 10 cases of paint trays and roller covers Storage cabinets Ladders and scaffolding Pete will use all of the paint trays and roller covers this year. The storage cabinets are expected to last nine years; the laddars and scaffolding, rour years 200 600 2,400 c. On February 1, Pete paid the city $1,500 for a three year license to operate the business. d. On September 1, Pete sold an old truck for $4,800 that had cost $12,000 when it was purchased on September 1, 2012. t was expected to last eight years and have a salvage value of s8oo. Pete used the straight line method of depreciation Required: 1. For each situation, determine the value assigned to the asset when it is purchased. For (d), determine the book value when it is sold. Do not round intarmediate calculations, Relevant Value Asset a. Recorded cost of truck b. Part 1 -recorded amount of supplies b. Part 2 - recorded cost of office furniture b. Part 3 recorded cost of equipment c. Recorded cost of prepaid license d. Book value of truck at time of sale s 18,800 v PreviousNext Check My Work All work saved. signment Score: 43% 1056PM

Explanation / Answer

1. For each situation, explain the value assigned to the asset when it is purchased [or for (d) the book value sold] :

Asset

Balance value

a. Record cost of truck

18,800

b. Amount of supplies (2,400*200/3,200)

150

b. Cost of office furniture (2,400*600/3,200)

450

b. Cost of equipment (2,400*2,400/3,200)

1,800

c. Cost of prepaid license

1,500

d. Book value of truck at the time of sale (cost - depreciation = 12,000- {(12,000-800)*5/8} = 12,000-7,000

5,000

2. Determine the amount of depreciation or other expense to be recorded for each asset :

Asset

Balance value

a. Truck depreciation (18,800-800)/4 years

4,500

b. Supplies expenses

150

b. Depreciation of office furniture (450/9)

50

b. Depreciation of equipment (1,800/4)

450

c. License amortization (1,500/3years)*11/12

458

d. Old truck depreciation(11,200/8years)*8/12

933

d. Gain or loss on sale = sale price - book value
= 4,800 - 5,000

(200)

3. How would these assets appear on a balance sheet as of December 31:

Current assets:

Amount

Amount

Prepaid License expenses (1,500-458)

$1,402

Property plant and equipment:

Truck

18,800

Office furniture

450

Equipment

1,800

$21,050

Less: Accumulated depreciation(4,500+50+450)

(5,000)

Net Property plant and equipment

$16,050

Asset

Balance value

a. Record cost of truck

18,800

b. Amount of supplies (2,400*200/3,200)

150

b. Cost of office furniture (2,400*600/3,200)

450

b. Cost of equipment (2,400*2,400/3,200)

1,800

c. Cost of prepaid license

1,500

d. Book value of truck at the time of sale (cost - depreciation = 12,000- {(12,000-800)*5/8} = 12,000-7,000

5,000

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