Question

The following transactions and adjusting entries were completed by a paper-packaging company called Gravure Graphics International during 2018 and 2019. The company uses straight-line depreciation for trucks and other vehicles, double-declining-balance depreciation for buildings, and straight-line amortization for patents.

2018 January 2 Paid $94,000 cash to purchase storage shed components.

January 3 Paid $4,000 cash to have the storage shed erected. The storage shed has an estimated life of 10 years and a residual value of $7,000.

April 1 Paid $37,000 cash to purchase a pickup truck for use in the business. The truck has an estimated useful life of five years and a residual value of $5,000.

May 13 Paid $300 cash for minor repairs to the pickup truck's upholstery.

July 1 Paid $21,000 cash to purchase patent rights on a new paper bag manufacturing process. The patent is estimated to have a remaining useful life of five years.

December 31 Recorded depreciation and amortization on the pickup truck, storage shed, and patent.

2019 June 30 Sold the pickup truck for $31,000 cash. (Record the depreciation on the truck prior to recording its disposal.)

December 31 Recorded depreciation on the storage shed. Also determined that the patent was impaired and wrote off its remaining book value (i.e., wrote down the book value to zero).

Required: Prepare the journal entries required on each of the above dates

Answer 1

Answer :

Date	Account title and Explanation	Debit ($)	Credit ($)
2018
Jan 2	storage shed components	94000
	cash		94000
Jan 3	storage shed components	4000
	cash		4000
April 1	Truck	37000
	cash		37000
may 13	Repair and maintenance expense	300
	cash		300
July 1	Patent	21000
	cash		21000
December 31	Depreciation expense -storage shed components	9100
	Depreciation expense -Truck	4800
	Accumulated depreciation-storage shed components		9100
	Depreciation expense -Truck		4800
December 31	Amortisation expense-patent	2100
	Accumulated amortisation		2100
2019
June 30	Depreciation expense -truck	3200
	Accumulated depreciation -truck [6400*6/12] [jan-june]		3200
June 30	cash	31000
	Accumulated depreciation [4800+3200]]	8000
	Gain on sale of truck		2000
	Truck		37000
Dec 31	Depreciation expense	9100
	Accumulated depreciation -storage shed components		9100
Dec 31	Impairment loss	18900
	Accumulated amortisation	2100
	Patent		21000

Depreciation for 2018 :storage shed = [cost -salvage value ]/useful life

                      =[(94000+4000)-7000]/10

=9100

Depreciation expense for 2018 :Truck = [37000-5000]/5

                       = 6400

depreciation for part months of 2018 (april - dec ]= 6400*9/12= 4800

Amortisation expense - patent =[21000/5]=4200*6/12 = 2100