Purchase of Computer with Zero-Interest-Bearing Debt Napoleon Corporation purchased a computer on December 31, 2009, for $130,000, paying $30,000 down and agreeing to pay the balance in five equal installments of $20,000 payable each December 31 beginning in 2010. An assumed interest rate of 10% is implicit in the purchase price.
(a) Prepare the journal entry (ies) at the date of purchase. (Round to two decimal places)
(b) Prepare the journal entry (ies) at December 31, 2010, to record the payment and interest (effective interest method employed).
(c) Prepare the journal entry (ies) at December 31, 2011, to record the payment and interest (effective interest method employed).
Kathleen Cole Inc. acquired the following assets in January of 2005.
Equipment, estimated service life, 5 years; salvage value, $15,000 ........$525,000
Building, estimated service life, 30 years; no salvage value ...........$693,000
The equipment has been depreciated using the sum-of-the-years-digits method for the first 3 years for financial reporting purposes. In 2008, the company decided to change the method of computing depreciation to the straightline method for the equipment, but no change was made in the estimated service life or salvage value. It was also decided to change the total estimated service life of the building from 30 years to 40 years, with no change in the estimated salvage value. The building is depreciated on the straight-line method.
(a) Prepare the general journal entry to record depreciation expense for the equipment in 2008.
(b) Prepare the journal entry to record depreciation expense for the building in 2008. (Round all computations to two decimal places.)
Matt Broderick Company began operations on January 2, 2013. It employs 9 individuals who work 8-hour days and are paid hourly. Each employee earns 10 paid vacation days and 6 paid sick days annually. Vacation days may be taken after January 15 of the year following the year in which they are earned. Sick days may be taken as soon as they are earned; unused sick days accumulate. Additional information is as follows.
Matt Broderick Company has chosen to accrue the cost of compensated absences at rates of pay in effect during the period when earned and to accrue sick pay when earned.
(a) Prepare journal entries to record transactions related to compensate absences during 2013 and 2014.
(b) Compute the amounts of any liability for compensated absences that should be reported on the balance sheet at December 31, 2013 and2014.
Nonmonetary Exchange Alatorre Corporation, which manufactures shoes, hired a recent college graduate to work in its accounting department. On the first day of work, the accountant was assigned to total a batch of invoices with the use of an adding machine. Before long, the accountant, who had never before seen such a machine, managed to break the machine. Alatorre Corporation gave the machine plus $320 to Mills Business Machine Company (dealer) in exchange for a new machine. Assume the following information about the machines.
Alatorre Corp. Mills Co.
(Old Machine) (New Machine)
Machine cost $290 $270
Accumulated depreciation 140
Fair value 85 405
For each company, prepare the necessary journal entry to record the exchange. (The exchange has commercial substance.)
Nonmonetary Exchange Montgomery Company purchased an electric wax melter on April 30, 2011, by trading in its old gas model and paying the balance in cash. The following data relate to the purchase.
List price of new melter $15,800
Cash paid 10,000
Cost of old melter (5-year life, $700 residual value) 12,700
Accumulated depreciation old melter (straight-line) 7,200
Second-hand market value of old melter 5,200
Prepare the journal entry (ies) necessary to record this exchange, assuming that the exchange
(a) Has commercial substance, and
(b) Lacks commercial substance. Montgomery year ends on December 31, and depreciation has been recorded through December 31, 2010.
Acquisition Costs of Realty the expenditures and receipts below and on the next page are related to land,
Acquisition Costs of Realty the expenditures and receipts below and on the next page are related to land, land improvements, and buildings acquired for use in a business enterprise. The receipts are enclosed in parentheses.
(a) Money borrowed to pay building contractor (signed a note) $(275,000)
(b) Payment for construction from note proceeds 275,000
(c) Cost of land fill and clearing 10,000
(d) Delinquent real estate taxes on property assumed by purchaser 7,000
(e) Premium on 6-month insurance policy during construction 6,000
(f) Refund of 1-month insurance premium because construction
completed early (1,000)
(g) Architect fee on building 25,000
(h) Cost of real estate purchased as a plant site
(land $200,000 and building $50,000) 250,000
(i) Commission fee paid to real estate agency 9,000
(j) Installation of fences around property 4,000
(k) Cost of razing and removing building 11,000
(l) Proceeds from salvage of demolished building (5,000)
(m) Interest paid during construction on money borrowed for construction 13,000
(n) Cost of parking lots and driveways 19,000
(o) Cost of trees and shrubbery planted (permanent in nature) 14,000
(p) Excavation costs for new building 3,000
Identify each item by letter and list the items in columnar form, using the headings shown below. All receipt amounts should be reported in parentheses. For any amounts entered in the Other Accounts column also indicate the accounttitle.
Nonmonetary Exchange Santana Company exchanged equipment used in its manufacturing operations plus $2,000
Nonmonetary Exchange Santana Company exchanged equipment used in its manufacturing operations plus $2,000 in cash for similar equipment used in the operations of Delaware Company. The following information pertains to the exchange.
Santana Co. Delaware Co.
Equipment (cost) $28,000 $28,000
Accumulated depreciation 19,000 10,000
Fair value of equipment 13,500 15,500
Cash given up 2,000
(a) Prepare the journal entries to record the exchange on the books of both companies. Assume that the exchange lacks commercial substance.
(b) Prepare the journal entries to record the exchange on the books of both companies. Assume that the exchange has commercial substance.
On December 31, 2008, Travis Tritt Inc. has a machine with a book value of $940,000. The original cost and related accumulated depreciation at this date are as follows.
Machine .......... $1,300,000
Accumulated depreciation ..... 360,000
Depreciation is computed at $60,000 per year on a straight-line basis.
Presented below is a set of independent situations. For each independent situation, indicate the journal entry to be made to record the transaction. Make sure that depreciation entries are made to update the book value of the machine prior to its disposal.
(a) A fire completely destroys the machine on August 31, 2009. An insurance settlement of $430,000 was received for this casualty. Assume the settlement was received immediately.
(b) On April 1, 2009, Tritt sold the machine for $1,040,000 to Dwight Yoakam Company.
(c) On July 31, 2009, the company donated this machine to the Mountain King City Council. The fair market value of the machine at the time of the donation was estimated to be $1,100,000.
Analysis of Subsequent Expenditures The following transactions occurred during 2011. Assume that depreciation of 10% per year is charged on all machinery and 5% per year on buildings, on a straight-line basis, with no estimated salvage value. Depreciation is charged for a full year on all fixed assets acquired during the year, and no depreciation is charged on fixed assets disposed of during the year.
Jan. 30 A building that cost $112,000 in 1994 is torn down to make room for a new building. The wrecking contractor was paid $5,100 and was permitted to keep all materials salvaged.
Mar. 10 Machinery that was purchased in 2004 for $16,000 is sold for $2,900 cash, f.o.b. purchaser plant. Freight of $300 is paid on the sale of this machinery.
Mar. 20 A gear breaks on a machine that cost $9,000 in 2006. The gear is replaced at a cost of $3,000. The replacement does not extend the useful life of the machine.
May 18 A special base installed for a machine in 2005 when the machine was purchased has to be replaced at a cost of $5,500 because of defective workmanship on the original base. The cost of the machinery was $14,200 in 2005. The cost of the base was $4,000, and this amount was charged to the Machinery account in 2005.
June 23 One of the buildings is repainted at a cost of $6,900. It had not been painted since it was constructed in 2007.
Prepare general journal entries for the transactions. (Round to the nearest dollar)