Truffle Bakery incurred each of the following transactions during 2017. Truffle
ID: 2554182 • Letter: T
Question
Truffle Bakery incurred each of the following transactions during 2017. Truffle uses the Units of-Production Method on all machinery, and the 175% declining balance method on buildings. Round all unit-of-production computations to the nearest $.01. A. On March 1,2017 Truffle purchased a new oven. The cost of the oven was $375,000 and has a residual value of $85,000. The estimated total production of the oven is 150,000 machine hours. In 2017, the oven was used 3,750 machine hours during 2017. The machine was purchased with cash. B. Truffle reported the following information about its icing machine as of December 31, 2017: Cost Accumulated Depreciation Estimated future cash flows Fair value $750,000 250,000 450,000 425,000 C. Purchased a patent on July 1,2015 for $15,000. The company intends to use the patent for ten years. D. On January 1,2017, Truffle spent $20,000 to extend the useful life of a dishwasher. The dishwasher was purchased on January 1,2015. The estimated useful life at the time of purchase was 100,000 machine hours. It was purchased for $175,000 and had a residual value of $25,000. The dishwasher was used 4,500 and 3,250 hours in 2015 and 2016 respectively. The improvements extend estimated useful life by 30,000 machine hours Truffle used 4,250 machine hours during 2017. E. Purchased land on October 1,2017 to build new bakery. The parcel of land cost $435,000. In addition, Truffle paid $15,000 in realtor fees, and $35,000 to clear the land in preparation for construction. Truffle used a 5% note payable to complete the entire purchase. Principal and interest are due on 10/1/2019. F. Truffle sold an old bakery on July 1,2017 for $1,100,000. The building was originally purchased on January 1,2014 for $1,500,000 and has a residual value of $180,000. The bakery has a useful life of 20 years Required: 1. Prepare the original journal entries to record the occurrence of each transaction in 2017. 2. Prepare all adjusting journal entries Truffle Bakery must prepare at December 31,2017. 3. Prepare a partial balance sheet and partial income statement for 2017. Show what Truffle would report based on the information provided.Explanation / Answer
1. Original Journal Entries Date No. Account and Explanations Debit ($) Credit ($) March 01, 2017 A Oven 3,75,000 Cash 3,75,000 (Being new oven purchased) Jan 01, 2017 D Dishwater 20,000 Cash 20,000 (Being expense made to extend life of Dishwater) Oct 01, 2017 E Land 4,85,000 5% Notes payable 4,85,000 (Being Land purchased using notes payable) July 01, 2017 F Bank 11,00,000 Bakery 11,00,000 (Being sold an old bakery) 2. Adjusting Journal Entries at December 31, 2017 A. Oven: Cost : 3,75,000 $ Residual Value: 85,000 $ Estimated total production 1,50,000 Machine Hours Machine hours usage in 2017 3,750 Machine Hours Depreciation for 2017 : (3750/150000)Machine hours * (375000-85000) $ So, Depreciation : 7250 $ No. Account and Explanations Debit ($) Credit ($) A Depreciation 7,250 Accumated Depreciation on Oven 7,250 (Being depreciation expense booked on Oven for FY 2017) B. Icing Machine Cost : 750000 $ Accumlated Depreciation 250000 $ Estimated Future cash flow 450000 $ Fair value 425000 $ So, Book value (750000-250000) 500000 $ As estimated cash flow is $ 4,50,000 Depreciation for 2017 : (500000-450000) 50000 $ No. Account and Explanations Debit ($) Credit ($) B Depreciation 50,000 Accumated Depreciation on Icing machine 50,000 (Being depreciation expense booked on Icing Machine for FY 2017) C. Patent Cost : 10000 $ Usage 10 Years So, Depreciation for 2017 : (10,000/10) 1000 $ No. Account and Explanations Debit ($) Credit ($) C Depreciation 1,000 Accumated Depreciation on Patent 1,000 (Being depreciation expense booked on Patent for FY 2017) D. Dishwater Purchase on January 01, 2015 $ 175000 Residual value $ 25000 Eatimated usefullife was - hours 100000 Used in 2015 4500 Hours So, Depreciation for 2015 : (175000-25000)*(4500/100000) 6750 Used in 2016 hours 3250 So, Depreciation for 2016 : (175000-25000)*(3250/100000) 4875 So, Book value as on December 31, 2017 (175000-6750-4875)$ 163375 Reamining estimated life (100000-4500-3250) Hours 92250 Extended useful life (92250+30000) hours 122250 Increase in cost 20000 $ So, Revised Book value (163375+20000) 183375 Residual value 25000 Used in 2015 4250 So, Depreciation for 2017 : (183375-25000)*(4250/122250) 5505.88 No. Account and Explanations Debit ($) Credit ($) D Depreciation 5,506 Accumated Depreciation on Dishwater 5,506 (Being depreciation expense booked on Dishwater for FY 2017)
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