Question

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

January		2		Purchased a bulldozer for $272,000 by paying $31,000 cash and signing a $241,000 note due in five years.
January		3		Replaced the steel tracks on the bulldozer at a cost of $31,000, 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 $1,900 cost.
March		1		Paid $10,200 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 $51,000 residual value.

3. 3. Prepare a journal entry to record the depreciation and amortization calculated in requirement 2.

Answer 1

	Date	Particulars	Debit	Credit
1(b)	02-Jan	Property, plant equipment(Bulldozer) A/c Dr.	272,000
		To, Cash		31,000
		To, Note payable		241,000
	03-Jan	Property, plant equipment(Bulldozer) A/c Dr.	31,000
		To, Account payable		31,000
	30-Jan	Account payable A/c                                      Dr.	31,000
		To, Bank		31,000
	01-Feb	Repairs and Maintenace A/c                         Dr.	1,900
		To, Bank		1,900
	01-Mar	Intangible Assets (Software)   A/c               Dr.	10,200
		To, Cash		10,200
2		Depreciation Table for Bulldozer
	Year	Book Value year start	Depreciation Rate	Depreciation expense	Accumulated Depreciation	Book value Year end	Depreciation Per Month
	1	$303,000	40%	121,200	$121,200	$181,800	10,100
	2	$181,800	40%	72,720	$193,920	$109,080	6,060
	3	$109,080	40%	43,632	$237,552	$65,448	3,636
	4	$65,448	22%	14,448	$252,000	$51,000	1,204
		Hence, depreciation of Bulldozer for the quarter ended 31th March			10,100*3
					$30,300
		AMORTIZATION Table for Software
		Opening book value	10,200
		Useful life	24 Months
		Amortization per month	425
		Hence amortization for March 31	$425
3	Date	Particulars	Debit	Credit
	31-Mar	Depreciation A/c Dr.	$30,300
		To, Property, plant equipment(Bulldozer) A/c		$30,300
	31-Mar	Amortization A/c Dr.	$425
		To, Intangible Assets (Software)   A/c		$425