Question

In: Accounting

Precision Construction entered into the following transactions during a recent year. January 2 Purchased a bulldozer...

Precision Construction entered into the following transactions during a recent year.

January

2

Purchased a bulldozer for $260,000 by paying $25,000 cash and signing a $235,000 note due in five years.

January

3

Replaced the steel tracks on the bulldozer at a cost of $25,000, purchased on account. The new steel tracks increase the bulldozer's operating efficiency.

January

30

Wrote a check for the amount owed on account for the work completed on January 3.

February

1

Repaired the leather seat on the bulldozer and wrote a check for the full $1,300 cost.

March

1

Paid $6,600 cash for the rights to use computer software for a two-year period

  1. 1-b. Prepare the journal entries for each of the above transactions.
  2. 2. For the tangible and intangible assets acquired in the preceding transactions, determine the amount of depreciation and amortization that Precision Construction should report for the quarter ended March 31. The equipment is depreciated using the double-declining-balance method with a useful life of five years and $45,000 residual value.
  3. 3. Prepare a journal entry to record the depreciation and amortization calculated in requirement 2.

Solutions

Expert Solution

PART 1-b

PART 2

Depreciation rate = 2*100%/5

                             = 40%

Depreciation = (Cost + Replacement cost)*Depreciation rate*3/12

                      = ($260,000 + $25,000)*40%*3/12

                      = $285,000*40%*3/12

                      = $114,000*3/12

                      = $28,500

Amortization expense = [(Cost of licence rights – Salvage value)/Estimated life]*1/12

                                     = [(6,600 – $0)/2]*1/12

                                     = ($6,600/2)*1/12

                                     = $3,300*1/12

                                     = $275

PART 3


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