Question

Machinery that cost $210,000 on 1 January 20X1 was sold for $85,500 on 30 June 20X6. It was being depreciated over a 10-year life by the straight-line method, assuming its residual value would be $21,000.

A building that cost $1,880,000, residual value $118,000, was being depreciated over 20 years by the straight-line method. At the beginning of 20X6, when the structure was 8 years old, an additional wing component was constructed at a cost of $635,000. The estimated life of the wing considered separately was 15 years, and its residual value was expected to be $33,500.

The accounting period ends 31 December.

Required:
1. Give all required entries to record:
       a. Sale of the equipment, including depreciation to the date of sale.
       b. The addition to the building: cash was paid.
       c. Depreciation on the building and its addition after the latter has been in use for one year. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Do not round intermediate calculations.)

2. Complete the part of the balance sheet given below showing how the building and attached wing would be reported.

Answer 1

Answer-

1	Machinery cost	$210,000
2	Date of purchase	01-Jan-20#1
3	Useful life	10 Years
4	No of years the asset has been depreciated 20#6-20#1	5 years
5	Accumulated Depreciation on 30-Jun-20#6 (210,000-21,000)*5/10	$94,500
6	Carrying value of an asset (1-5)	$115,500
6	Sale Value	$85,500
7	Loss on sale of machinery	($30,000)
8	Addition to building	$635,000
9	Useful life	15 years
10	Scrap value	$33,500
11	Additional depreciation	$40,100
12	Original Building	$1,880,000
13	Residual value	$118,000
14	Yearly depreciation on original building (12-13)/20	$88,100
15	Total Depreciation 14+11	$128,200
16	Carrying value of an building at the end of 9 th year 1,880,000-(88,100*9)	$1,087,100
Journal Entries
S.l No.	Particulars	Debit	Credit
1	Cash	$85,500
	Loss on sale of machinery	$30,000
	Accumulated depreciation	$94,500
	To Machinery		$210,000
Narration	Being Machinery sold and loss recognized
2	Buildings	$635,000
	To Cash		$635,000
Narration	Being addition to buildings done
3	Depreciation	$128,200
	To Accumulated depreciation		$128,200
Narration	Being accumulated depreciation provided
Balance Sheet
	Building	$1,880,000
Less	Accumulated depreciation	$792,900
			1,087,100
	Additional Building	$635,000
	Accumulated depreciation	$40,100
			$594,900
		Total	1,682,000