Question

Parker Piano Company purchases a tract of land and an existing building for $1,000,000. The company plans to remove the old building and construct a new restaurant on the site. In addition to the purchase price, Parker pays closing costs, including title insurance of $3,000. The company also pays $14,000 in property taxes, which includes $9,000 of back taxes (unpaid taxes from previous years) paid by Parker on behalf of the seller and $5,000 due for the current fiscal year after the purchase date. Shortly after closing, the company pays a contractor $50,000 to tear down the old building and remove it from the site. Parker is able to sell salvaged materials from the old building for $5,000 and pays an additional $11,000 to level the land.

Determine the cost of the land.

Cost of land:

Purchase cost                                          $1,000,000

Add: Closing costs                                  3,000

Add: Back taxes                                       9,000

Add: Cost of tearing the building             50,000

Add: Cost of leveling the land                 11,000

Less: Salvage value of materials              5,000

Total cost of land                                    $1,068,000

Depreciation and Disposal

The Parker Piano Company purchased a Delivery Truck on January 1, 2025 for $50,000 which included all costs to get the asset ready for use. The truck has an anticipated life of 100,000 miles or 4 years. The estimated residual value at the end of the assets service life is expected to be $2,000. For assets of this type, the company utilizes the straight-line depreciation method.

1. Record the purchase of the asset.

Date	Account Name	Debit	Credit
1/1/2025	Truck	$50,000
	Cash		$50,000

B. Complete the depreciation table below.

Period Ended	Depreciation Expense	Accumulated Depreciation	End of Period Book Value
December 31, 2025	$12,000	$12,000	$38,000
December 31, 2026	12,000	24,000	26,000
December 31, 2027	12,000	36000	14,000
December 31, 2028	12,000	48,000	2,000

(QUESTIONS A and B have been completed please complete C-D)

3. Record the entry for December 31, 2025 to record the depreciation for the year.

Date	Account Name	Debit	Credit

D. Suppose the company sells the van on December 31, 2027 for $18,000 cash. Provide the journal entry to record the sale.

Date	Account Name	Debit	Credit

E. Assume the company chooses to use the units-of-production method. Based on the information below, complete the depreciation schedule.

Year	Miles Driven
2025	27,000
2026	24,000
2027	32,000
2028	22,000

Period Ended	Depreciation Expense	Accumulated Depreciation	End of Period Book Value
December 31, 2025
December 31, 2026
December 31, 2027
December 31, 2028

Answer 1

C.

Date	Account Name	Debit	Credit
December 31, 2025	Depreciation expense-Truck	$12,000
	Accumulated depreciation-Truck		$12,000

D.

Book value of truck as on December 31, 2027 = Purchase cost - Accumulated depreciation

Book value of truck as on December 31, 2027 = $50,000 - 36,000 = $14,000

Gain on sale = $18,000 - 14,000 = $4,000

Date	Account Name	Debit	Credit
December 31, 2027	Cash	$18,000
	Accumulated depreciation-Truck	36,000
	Truck		$50,000
	Gain on sale		4,000

E.

Units of production method:

Depreciation rate per mile = $50,000-2,000 / 100,000 = $0.48 per mile

Period ended	Depreciation expense	Accumulated depreciation	End of period book value
December 31, 2025	$12,960 (27,000*$0.48)	$12,960	$37,040
December 31, 2026	11,520 (24,000*$0.48)	24,480	25,520
December 31, 2027	15,360 (32,000*$0.48)	39,840	10,160
December 31, 2028	8,160 (10,160-2,000)	48,000	2,000