Question

A city government adds street lights within its boundaries at a total cost of $253,500. The lights should burn for at least 13 years but can last significantly longer if maintained properly. The city sets up a system to monitor these lights with the goal that 97 percent will be working at any one time. During the year, the city spends $42,000 to clean and repair the lights so that they are working according to the specified conditions. However, it spends another $96,600 to construct lights for several new streets in the city.

1. Prepare the entries assuming infrastructure assets are capitalized with depreciation recorded.

2. Prepare the entries assuming infrastructure assets capitalized with government using the modified approach.

Answer 1

1.Journal entries assuming infrastructure assets are capitalized with depreciation recorded:

a  

General Journal	Debit	Credit
Infrastructure asset - street light	$253,500
Cash		$253,500
(To record cost of street light)

b

General Journal	Debit	Credit
Depreciation($253,500 / 13)	$19,500
Accumulated depreciation		$19,500
(To record depreciation on infrastructure asset)

c

General Journal	Debit	Credit
Maintenance Expense	$42,000
Cash		$42,000
(To record expenses on maintenance of street lights)

d.

General Journal	Debit	Credit
Infrastructure asset - street light	$96,600
Cash		$96,600
(To record additional cost of new street light)

2. Journal entries assuming infrastructure asset capitalized with government using modified approach:

a

General Journal	Debit	Credit
Infrastructure asset - street light	$253,500
Cash		$253,500
(To record cost of street light)

b

General Journal	Debit	Credit
Maintenance Expense - infrastructure asset	$42,000
Cash		$42,000
(To record expenses on maintenance of street lights)

c

General Journal	Debit	Credit
Infrastructure asset - street light	$96,600
Cash		$96,600
(To record additional cost of new street light)