Question

Complete the following journal entries for PAT Company.

1. An assembly machine was purchased for $500,000, shipping cost was $10,000, and the company incurred $5,000 installation cost and $3,000 in testing cost. The company took out a $450,000 15 year 8 percent note payable and paid the balance in cash.

2. PAT Company paid $7,500 in routine maintenance costs.

3. Improvements of $10,000 were paid on an old machine which extended its useful flie.

4. Monthly depreciation of $8000 was recorded.

5. The monthly depreciation of a $100,000 asset with a salvage value of $4,000 at the end of its useful life of 8 years was recorded. The company uses a straight line method of depreciation.

6. The monthly depreciation of a $60,000 asset with a salvage value of $6,000 at the end of its useful life of 12,000 hours of production was recorded. The production for this month was 50 hours. The company uses a unit of production method of depreciation.

7. An old machine with an original cost of $30,000, accumulated depreciation of $20,000, residual value of $3,000 and market value of $7,000 was sold for $6,000 in cash.

PLEASE TYPE LAST RESPONSE WASNT LEGIBLE

Answer 1

Please refer the notes after the below journal entries for detailed explanations:

Notes:

1. When an new asset is purchased all the costs incurred on it's purchase will be capitalized along with the cost of asset. Hence the capitalized cost of Assembly line machine would be -

The total capitalized cost of $518,000 is paid by taking a Note payable for $450,000 and the balance of $68,000 in cash

2. The Routine maintenace costs are considered as operating expenses

3. The improvements on an old machine is leading to extended useful life, hence these costs should be capitalized and add to the cost of asset account

4. The monthly depreciation is expensed off and credited to accumulated depreciation account

5. The Monthly Depreciation would be calculated as follows -

6. Under unit of production method of depreciation the net value of asset after deducting the salvage value need to be divided by the total hours of life to arrive at the cost per hour. The number of hours used during the period should be multiplied to arrive the amount of depreciation to be charged

7. When an asset is disposed the book value would be reduced to the extent of accumulated depreciation and any gain or loss resulting from the sale of asset would be charged to profit & loss account for the period -