In: Accounting
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. |
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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. |
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January |
30 |
Wrote a check for the amount owed on account for the work completed on January 3. |
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February |
1 |
Repaired the leather seat on the bulldozer and wrote a check for the full $1,300 cost. |
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March |
1 |
Paid $6,600 cash for the rights to use computer software for a two-year period |
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