PA9-4 Recording Transactions and Adjustments for Tangible and Intangible Assets
ID: 2575338 • Letter: P
Question
PA9-4 Recording Transactions and Adjustments for Tangible and Intangible Assets [LO 9-1, LO 9-2, LO 9-3, LO 9-4, LO 9-5, LO 9-6]
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 $27,000 cash to purchase patent rights on a new paper bag manufacturing process. The patent is estimated to have a remaining useful 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 zero).
Prepare the journal entries required on each of the above dates.
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.
Explanation / Answer
Your entries upto July 01, 2015 are correct and remaining are as follows: Date Accounts titles and expalnation Debit Credit dec 31,2015 Depreciation expense 20900 Amortization expense 2700 Accumulated Depreciation-Building 17000 Accumulated Depreciation-Equipment 3900 Accumulated Amortization-Patent 2700 30-Jun-16 Depreciation expense 2600 Accumulated depreciaiton- equipment 2600 30-Jun-16 Cash 26000 Accumulated depreciaiton- equipment 6500 Equipment 31000 Gain on disposal 1500 31-Dec-16 Depreciation Expense 13600 Accumulated Depreciation-Building 13600 31-Dec-16 Impairment loss 24300 Patent 24300 *Calculation of depreciation on building: (total cost of building - salvage value) * 20% (from Jan to decmber 2015 (88000 + 4000 - 7000) * 20% 85000 * 20% 17000 doublie declining depreciation rate = 2 * straight line dep. Rate 2*10 = 20% straight line depreciation rate = 100 / 10 10% (from jan to dec. 2016) (total cost of building - salvage value - depreciation) * 20% (88000 + 4000 - 7000 - 17000) * 20% 68000 * 20% = 13600 *Calculaiton of depreciation on equipment: (April 1,2015 to december 31, 2015 5200 * 9/12 3900 (Cost - residule value) / useful life (31000 - 5000) / 5 5200 per year 1/1/2016 - June 30, 2016 5200 * 6 / 12 2600 Total Depreciation = 3900 + 2600 = 6500 *Calculaiton of amortization on patent: 1July, 2015 - 31 dec.2015 Purchase of patent rights / 5Years * 6/12 27000 / 5 * 6/12 2700 *Calculation of impirment loss: Purchase price - amortization expense 27000 - 2700 24300
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