Question

Journal Entries for Plant Assets

During the first few days of the year, Jules Company entered into the following transactions:

1	Purchased a parcel of land with a building on it for $900,000 cash. The building, which will be used in operations, has an estimated useful life of 20 years and a salvage value of $60,000. The assessed valuations for property tax purposes show the land at $80,000 and the building at $720,000.
2	Paid $31,200 for the construction of an asphalt parking lot for customers. The parking lot is expected to last 12 years and has no salvage value.
3	Paid $50,000 for the construction of a new entrance to the building.
4	Purchased store equipment, paying the invoice price (including seven percent sales tax) of $78,760 in cash. The estimated useful life of the equipment is eight years, and the salvage value is $6,000.
5	Paid $240 freight on the new equipment.
6	Paid $1,650 to repair damages to floor caused when the store equipment was accidentally dropped as it was moved into place.
7	Paid $75 for an umbrella holder to place inside front door (customers may place wet umbrellas in the holder). The holder is expected to last 20 years.

b. Prepare the December 31 journal entries to record depreciation expense for the year. Double-declining balance depreciation is used for the equipment, and straight-line depreciation is used for the building and parking lot.

Answer 1

Journal entry on 31st Dec for depreciation expense:

For depreciation expense on building:

Debit Depreciation expense 40000   

Credit Accumulated depreciation   40000

For depreciation expense on Parking lot:

Debit Depreciation expense 2600

Credit Accumulated depreciation 2600

For depreciation expense on equipment:

Debit Depreciation expense 18250   

Credit Accumulated depreciation 18250

Calculations:

It has been mentioned that jules company has entered into all transactions during 1st few days of the year. Since date has not been mentioned, we will calculate depreciation expense for the whole year i.e 12 months or 1 year.

Parcel of land purchased purchased for 900,000 Since, Land and building value given is 80,000 and 720,000. The value of land in parcel will be 900,000*80000/800000= 90000

And value of building will be 900000*720000/ 800000= 810000

*Land is non depreciable asset.

Building: Purchased value 810,000

Addition   50,000 (new entrance)

Total cost of the building     860000

Depreciation expense on SLM basis= (Total cost of bulding-Salvage value)/ Useful life of the asset

(860000-60000)/20= 40000

b) Depreciation expense on parking lot= (31200-0)/12= 2600

c)Depreciation on Equipment:

Purchase price    78760

Freight paid 240

Total cost of the equipment 79000

Depreciation by double declining method= (cost of the equipment- salvage value)*(2*depreciation rate as per SLM)

Depreciation rate by SLM method= 1/useful life*100= 1/8*100= 12.5%

Depreciation expense for year 1 by DD method= (79000-6000)*(2*12.5%)= 18250

Note: Repair damages will be operating cost and will be charged as expenses.