Question 21 (of 21) value 060 points PA9-4 Recording Transactions and Adjustment

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Question 21 (of 21) value 060 points PA9-4 Recording Transactions and Adjustments for Tangible and Intangible Asset The following transactions and adjusting entries were completed by a paper-packaging company called Gravure Graphics International during 2015 and 2016. The company uses straight-line depreciation for trucks and other vehicles, double-declining-balance depreciation for buildings, and straight-line amortization for patents. Paid $88,000 cash to purchase storage shed components. Paid $4,000 cash to have the storage shed erected. The storage shed has an estimated life of 10 years and a residual value of $7,000 Paid $31,000 cash to purchase a pickup truck for use in the business. The truck has an estimated useful life of five years and a residual value of $5,000. Paid $300 cash for repairs to the pickup truck. Paid $27,000 cash to purchase patent rights on a new paper bag manufacturing process. The patent is estimated to have a remaining usefut life of five years Recorded depreciation and amortization on the pickup truck, storage shed, and patent. Sold the pickup truck for $26,000 cash. (Record the depreciation on the truck prior to recording its disposal.) Recorded depreciation on the storage shed. Determined that the patent was impaired and wrote off its remaining book value (i.e., wrote down the book value to 2, 2015 January January 3, 2015 1, 2015 13, 2015 April May July 1, 2015 December 31, 2015 June 30, 2016 December 31, 2016 zero) Required: Prepare the journal entries required on each of the above dates. (If no entry is required for a transaction/event, select "No Journal Entry Required" in the first account field. Do not round View transaction list Journal entry worksheet K12 3 4 5 67 89 10

Explanation / Answer

Calculations:

Straight-line depreciation on truck

Annual depreciation = (Cost - Salvage value)/Estimated useful life = ($31000 - $5000) / 5 years = $26000 / 5 = $5200

2015 depreciation for 9 months = $5200 x 9 / 12 = $3900

2016 depreciation for 6 months = $5200 x 6 / 12 = $2600

Double-declining depreciation on storage shed (Building)

Straight-line annual depreciation rate = 100% / Estimated useful life = 100% / 10 years = 10%

DDB rate = 200% x 10% = 20%

Date Account Titles and Explanation Debit Credit 2015 Jan-02 Building-Storage shed 88000 Cash 88000 (Storage shed components purchased for cash) Jan-03 Building-Storage shed 4000 Cash 4000 (Erection costs paid in cash) Apr-01 Truck 31000 Cash 31000 (Pickup truck purchased for cash) May-13 Repairs expense 300 Cash 300 (Repairs to pickup truck paid in cash) Jul-01 Patents 27000 Cash 27000 (Purchase of patents for cash) Dec-31 Depreciation expense 22300 Accumulated depreciation-Building 18400 Accumulated depreciation-Truck 3900 (Depreciation expense for the year) Amortization expense ($27000 / 5 years x 6/12) 2700 Patent 2700 (Amortization expense for the year) 2016 Jun-30 Depreciation expense 2600 Accumulated depreciation-Truck 2600 (Depreciation expense on truck) Cash 26000 Accumulated depreciation-Truck 6500 Truck 31000 Gain on sale 1500 (Sale of truck for cash) Dec-31 Depreciation expense 14720 Accumulated depreciation-Building 14720 (Depreciation expense on building) Loss on impairment of patent 24300 Patent 24300 (Loss on impairment of patent)

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