Question

Item 1: Entity A purchased land adjacent to its plant to improve access for trucks making deliveries. Expenditures incurred in purchasing the land were as follows: Purchase price $55,000

Broker’s fees 6,000

Title search and other fees 5,000

Demolition of an old building on the property, 5,700

Grading 1,200

Digging foundation for the road 3,000

Laying and paving driveway 25,000

Lighting 7,500

Signs 1,500.

List the items and amounts that should be included in the Land account.

Item 2: Equipment with a cost of $480,000 has an estimated salvage value of $30,000 and an estimated life of 4 years. Compute the annual depreciation and then show what this asset looks like on the balance sheet at the end of the second year.

Item 3: Equipment that cost $72,000 and on which $60,000 of accumulated depreciation has been recorded was disposed of for $18,000 cash. Make the entry to record this transaction. Hint: Compute BV and then gain (loss).

Item 4: Entity B bought equipment for $240,000 on January 1, 2021. It estimated the useful life to be 3 years with no salvage value, and the straight-line method of depreciation was used. On January 1, 2022, Entity B decides that it will use the equipment for a total of 5 years. Compute the revised depreciation expense for 2022 and make the entry.

Answer 1

Item 1:

	Amounts to be included in Land:
	Particular's:				$
	Purchase price					$55,000
	Broker’s fees					6,000
	Title search and other fees					5,000
	Demolition of an old building on the property,					5,700
	Grading					1,200
	Total					$72,900

Other costs to be included as land improvements.

Item 2:

Annual depreciation=(Cost-Salvage value)/Estimated life=(480000-30000)/4=$ 112500

Balance sheet (Partial) At the end of second year:

Plant assets:

Equipment   480000

Less: Accumulated depreciation   225000

(112500*2)

Equipment (net)   255000

Item 3:

Book value=Cost-Accumulated depreciation=72000-60000=$ 12000

Gain (loss) on sale:

Disposal value 18000

Less: Book value   12000

Gain on sale 6000

Journal entry:

Account title Debit Credit

Cash   18000

Accumulated depreciation 60000

Equipment 72000

Gain on sale of equipment 6000

(Equipment sold)

Item 4:

bought price of equipment on jan 1 2021 = 240000

estimated useful life = 3 years

depreciation for 2021 = 240000 / 3 = 80,000

written down value (WDV) = 240000 - 80000 = 160,000

revised estimated useful life = 5 years

Remaining life of the equipment = 5 - 1 = 4 years

revised depreciation expense for 2022 year

=(Book value of equipment after one year-Salvage value)/Remaining life of the equipment

=160000 / 4 = 40,000

Journal entry:

Account title Debit Credit

Depreciation expense 40,000

Accumulated depreciation 40,000

(To record revised depreciation)

----HOPE THIS IS HELPFUL