Question

The following transactions and adjusting entries were completed by a local delivery company called Fast Delivery. The company uses straight-line depreciation for delivery vehicles, double-declining-balance depreciation for buildings, and straight-line amortization for franchise rights. 2018 January 2 Paid $178,000 cash to purchase a small warehouse building near the airport. The building has an estimated life of 20 years and a residual value of $3,600. July 1 Paid $46,000 cash to purchase a delivery van. The van has an estimated useful life of five years and a residual value of $9,200. October 2 Paid $600 cash to paint a small office in the warehouse building. October 13 Paid $200 cash to get the oil changed in the delivery van. December 1 Paid $85,500 cash to UPS to begin operating Fast Delivery business as a franchise using the name The UPS Store. This franchise right expires in five years. December 31 Recorded depreciation and amortization on the delivery van, warehouse building, and franchise right. 2019 June 30 Sold the warehouse building for $142,000 cash. (Record the depreciation on the building prior to recording its disposal.) December 31 Recorded depreciation on the delivery van and amortization on the franchise right. Determined that the franchise right was not impaired in value. Required: Prepare the journal entries required on each of the above dates. (If no entry is required for a transaction/event, select "No Journal Entry Required" in the first account field. Do not round intermediate calculations.)

Answer 1

ANSWER :-

Date	Accounts title	Debit	Credit
2018
Jan.2	Building	$1,78,000
	Cash		$1,78,000
	( To record purchase of building )
July.1	Delivery Van	$46,000
	Cash		$46,000
	( To record purchase of delivery )
Oct. 2	Painting Expense	$600
	Cash		$600
	( To record Painting Expense )
Oct. 13	Oil Expense	$200
	Cash		$200
	( To record oil Expense )
Dec. 1	Franchise right	$85,500
	Cash		$85,500
	( To record the payment of )
Dec. 13	Depreciation Expense	$71,200
	Accumulated Depreciation		$71,200
	( To record depreciation expense on Building )
	Depreciation Expense	3680
	Accumulated Depreciation		3680
	( To record depreciation expense delivery van for 6 month )
	Amortization Expense	$1,425
	Franchise right		$1,425
	( To record amortization expense on franchise right for 1 month )
2019
Dec. 31	Depreciation Expense	$21,360
	Accumulated Depreciation		$21,360
	( To record depreciation expense in building )
June. 30	Cash	$1,42,000
	Building		$85,440
	Profit on sale of building		$56,560
	( To record sale of building )
Dec. 31	Depreciation Expense	$7,360
	Accumulated Depreciation		$7,360
	( To record depreciation expense delivery van for 1 Year )
	Amortization Expense	$17,100
	Franchise right		$17,100
	( To record amortization expense on franchise right for 1 Year )

Working Note :-

Depreciation on delivery vehicles for 2018 = Cost of the asset - residual value / useful life * 6/12

= $ 46,000 - $ 9,200 / 5 * 6/12

= $ 3,680

Depreciation on delivery vehicles for 2019 = $ 3680 * 2 = $ 7,360

Calculate amortization expense on franchise rights :-

Amortization using Straight line Method = Cost of the asset - residual value / useful life * 1/12

= $ 85,500 - $ 0 / 5 * 1/12

= $1,425

Calculate depreciation expense on building :-

Depreciation rate using double declining Method = 1/5*2*100 = 40%

Depreciation on Building for 2018 = $ 1,78,000 * 40% = $ 71,200

Depreciation on building for 2018 = ( $ 1,78,000 - $ 71,200)*40%*6/12 = $ 21,360