Question

D&D Construction Ltd. is based in Maitland, Nova Scotia. The company takes on construction jobs ranging from small contracts worth just a few thousand dollars to multi-million-dollar projects. It only prepares accrual and adjusting entries at year end. The following significant transactions have occurred in 20X7, and may have possible yearend adjustment implications:

a) Land

D&D accounts for land using the revaluation model. The company has only one parcel of land. It is recorded in the statement of financial position by D&D at $3.2 million. In 20X7, the value of the land was assessed, and found to be $3 million. No revaluation adjustments have been recorded in the past.

Required:
Prepare the journal entry to record the change in value of the land.

b) Plant and equipment

Details of D&D’s property, plant, and equipment are provided in the data file. Buildings, mobile equipment, automobiles, and office equipment are depreciated using the straight-line method. Tools and equipment are depreciated using the declining balance method. The depreciation rates on tools and equipment vary from 17.5% to 33% per year. Computer equipment is depreciated using a double-declining rate method at 62.5% per year.

On January 1, 20X7, warehouse equipment with a cost of $85,600 was delivered. The equipment was immediately put into service. The useful life is expected to be 11 years, with an expected residual value of $10,500. This equipment is depreciated using the declining balance method at a rate of 17.5%. The invoice for this equipment was received and paid, but was inadvertently not recorded.

On December 31, 20X7, the company disposed of several hand tools. The cost of these tools was $21,300, and accumulated depreciation as at December 31, 20X6, was $18,899. The equipment sold for total proceeds of $6,500. The funds received were recorded by the company as a gain on sale of property, plant and equipment of $6,500.

Depreciation for 20X7 has not yet been recorded for any of the property, plant, and equipment (PPE) held by the company.

Required:

Prepare any necessary journal entries to record and correct the PPE transactions detailed above.

c) Equipment patent

D&D registered a patent on January 1, 20X0. The expected useful life of the patent was 10 years. The patent was capitalized at $110,000. The net book value at January 1, 20X7, was $33,000. On December 31, 20X7, the patent was tested for impairment and it was determined that it had no further value.

Required:

Prepare any necessary journal entries associated with D&D’s equipment patent for 20X7.

Answer 1

a)	Impairment Losses	$ 2,000,000.00
	Accumulated Impairment Losses-Land	$ 2,000,000.00
	To record impairment of land
b)	Warehouse Equipment	$        85,600.00
	Cash		$        85,600.00
	To record purchase of equipment
	Depreciation Debit	$        14,980.00		85600*17.5%
	Accumulated Depreciation-Warehouse equipment credit	$        14,980.00
	To record depreciation
	Profit on sale of asset Debit	$          1,981.00
	Depreciation Expense Debit	$              420.00		=(21300-18899)*17.5%	Book value *depreciation rate
	Accumulated depreciation -hand tools	$        18,899.00
	Hand Tools Credit		$        21,300.00
	To record rectification of sale of equipment
	Working
	Hand tool cost	$        21,300.00
	Less: Accumulated dep	$        18,899.00
	Net value	$          2,401.00
	Less:Depreciation 2017	$              420.00
	Net book value	$          1,981.00
	Sale value	$          6,500.00
	Gain on sale	$          4,519.00	6500-1981
	Gain already recorded	$          6,500.00
	Gain to be rectified	$          1,981.00
C)	Loss on Impairment Debit	$        33,000.00
	Accumulated Amortization -Patent Debit	$        77,000.00		(110000-330000
	Patent Credit		$      110,000.00
	To record impairment of patent