Question

In: Accounting

On 21 June 20x1, the Large Mart store in Armidale ordered a new company car for...

On 21 June 20x1, the Large Mart store in Armidale ordered a new company car for its customer service department (called the “Nerd Herd”) from a car dealer in Brisbane for $30,000. The car was delivered to Large Mart on 20 June 20x1. On that day, Large Mart sent the car to one of its suppliers who painted a large “Large Mart” sign on the side of the car. The Large Mart sign on the car cost $500 and was paid in cash on 25 June 20x1. The car was returned to Large Mart on 25 June 20x1 and Large Mart started to use the car on that day. Large paid for the car using the CEO’s credit card, and the car dealer charged a transaction fee of $450 for the use of that credit card. Large Mart will use the new car for 8 years and depreciate the car using the straight-line depreciation. Large Mart expects that the car will have a residual value of zero at the end of its useful life. Required: a) Determine if the cost of painting the “Large Mart” sign on the car and the credit card payment surcharge influence the cost of the car when it is first recognised as an asset in the Large Mart accounts, AND provide an in-depth reflection of the reasons that you have used to make this decision. b) Provide all journal entries that are necessary in the books of Large Mart to account for the purchase of the car during June 20x1 – ASSUMING that Large Mart records all Credit Card transactions as “Cash at Bank” payments. (1 mark) c) Provide all journal entries that are necessary in the books of Large Mart to account for the depreciation of the car for the month of June 20x1, AND provide a detailed outline of your calculations.

Solutions

Expert Solution

a) All costs incurred on an asset to bring it into current state would be eligible for capitalization. Large Mart started to use the car only after painting the "Large Mart" sign on the car. Hence, the cost incurred on painting the sign as well as surcharge on credit card payment can be added to the cost of the asset.

b and c) Journal entries to record purchase of asset and depreciation:

(Amount in $)

Date Particulars Debit Credit
21 June 20X1

Car A/c

To Brisbane Car Dealer's A/c

(Being car purchased and delivered)

30,000

30,000

25 June 20X1

Car A/c

To Cash At Bank

(Being sign painting charges and credit card transaction fee incurred)

950

950

25 June 20X1

Depreciation A/c

To Accumulated Depreciation on car A/c

(Being depreciation on car booked for the month of June 20X1)

64

64

Depreciation calculation:

cost to be capitalized = $ 30,000 + $ 950 = $ 30,950

salvage value - $ 0

Useful Life = 8 years

Number of days of use in June 20X1 = 25 June 20X1 to 30 June 20X1 = 6 days (including 25th June)

Depreciation to be charged per year = Cost of asset - salvage value = 30,950 - 0 = $ 3,869 (approx.)

No. of years 8

Depreciation for June 20X1 = 3,869 * 6/365 = 64 (approx.)


Related Solutions

On 21 June 20x1, the Large Mart store in Armidale purchased a new company car for...
On 21 June 20x1, the Large Mart store in Armidale purchased a new company car for its customer service department (called the “Nerd Herd”). The car costs $60,000 and was purchased from Coffs Harbour Car Sales. When purchasing the car, Large Mart took out a 1 year comprehensive insurance policy with NRMA insurance for a cost of $2,000. The invoice for the car allows Large Mart to deduct 5% of the cost of the car if the invoice is paid...
Question 3 (6 marks) On 21 June 20x1, the Large Mart store in Armidale ordered a...
Question 3 On 21 June 20x1, the Large Mart store in Armidale ordered a new company car for its customer service department (called the “Nerd Herd”) from a car dealer in Brisbane for $30,000. The car was delivered to Large Mart in Armidale on 28 June 20x1, and the delivery company left a delivery invoice of $500 when delivering the car. The invoices for the car and the delivery of the car were paid via bank transfer on 29 June...
Question: Large Mart has recently finished building a new factory for computers in Armidale. Large Mart...
Question: Large Mart has recently finished building a new factory for computers in Armidale. Large Mart was using its own staff and several items of its own machinery/equipment that were specifically acquired to undertake parts of the building works. The overall construction work took a total of 15 month, with Large Mart staff working on the project throughout this time. The Large Mart Finance Department has calculated that during the 15 month construction time, the following expenditures occurred (please note...
Question 4 (6 marks) On 1 July 20x1, Large Mart purchases a new building (and the...
Question 4 On 1 July 20x1, Large Mart purchases a new building (and the associated land) in Sydney. Large Mart paid $1,000,000 for the land and $800,000 for the building. Large Mart will use the building for 30 years, after which time the building will have a residual value of 50,000. Large Mart will depreciate this building, using the declining balance depreciation method, with a yearly depreciation percentage of 6.67%. On 1 July 20x3, Large Mart decides to revalue the...
The U-Mart Supermarket is a convenience store company that has five store located in different location...
The U-Mart Supermarket is a convenience store company that has five store located in different location at UTM Skudai. At the end of each year, the management of the UTM wants to know the performance of the company. They have decided to use a computer program to help them in analyzing the company performance based on the total sales of each quarter in all stores. Develop a C program to perform this task using array and function based one following...
Widget Production Ltd. has a fiscal year end of June 30. In February​ 20X1, the Company...
Widget Production Ltd. has a fiscal year end of June 30. In February​ 20X1, the Company borrowed​ $750,000 to fund an expansion. The Company paid​ $21,000 to obtain this financing. In January​ 20X2, the Company repaid​ $250,000 of the principal and in June​ 20X3, it repaid the remaining​ $500,000. All repayments were made from cash flow from operations. For tax​ purposes, which one of the following schedule of claims represents the most rapid method of claiming the costs of obtaining...
How might Wal-Mart (or another large company) take advantage of each of the following
How might Wal-Mart (or another large company) take advantage of each of the following: Do not merely provide a definition. Provide a specific example of eacha. Capacity optionb. Growth optionc. Investment timing optiond. Abandonment optione. Decision-tree analysis
At the beginning of 20X1, Monterey Company purchased a new piece of equipment at a cost...
At the beginning of 20X1, Monterey Company purchased a new piece of equipment at a cost of $50,000. The equipment was expected to have a ten-year life and no salvage value. Unfortunately, the bookkeeper at Monterey erroneously recorded the purchase of the equipment with a debit to maintenance expense. This error was not discovered until the 20X6. The company had planned to use the Straight-line method of depreciation for both financial statement and tax reporting purposes. The company is in...
A large corporation subjected to 21% tax rate is investing in a new income producing asset...
A large corporation subjected to 21% tax rate is investing in a new income producing asset that is depreciated on a MACRS 5 year schedule. The full price of the asset is 300,000 but the asset will be financed at an interest rate of 7.00% over 4 years after a down payment of 25%. The expected revenue and costs by year are given below. When retired, the asset will have no value. Prepare a net cash flow statement / exhibit...
4. A large corporation subjected to 21% marginal tax is investing 200,000 in a new income...
4. A large corporation subjected to 21% marginal tax is investing 200,000 in a new income producing asset that is depreciated on a MACRS 5 year schedule. The asset was paid for completely when purchased in the first quarter of the first year of operation but for analysis purposes the cash flow of purchase is in period 0. The expected revenue and costs by year are given below. When retired, the asset will have no value. Year 1 2 3...
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT