Question

1. On January 2, 2020, Murphy Company purchased land that cost $410,000, a building on the land that cost $1,450,000, and equipment that cost $70,000. The building has an estimated useful life of 29 years. The equipment has an estimated useful life of 7 years.

Required: Prepare the property, plant, and equipment section of the balance sheet as of December 31, 2020. Note: Use straight-line depreciation with no salvage value. Murphy Company Balance Sheet (partial) December 31 Property, Plant, and Equipment Buildings Accumulated Depreciation, Buildings Total Property, Plant, and Equipment

2. On December 31, Perez Company has earned interest revenue of $2,200 on outstanding notes, even though the company will not actually receive the interest until the following year.

Required:
Journalize the adjusting entry on December 31.

3. On January 1, Williams Company purchased a large piece of equipment for $46,200. It has an estimated useful life of 7 years.

Required:
Journalize the adjusting entry on December 31.

Note: Use straight-line depreciation with no salvage value.

Answer 1

1) On Land there is no depreciation to be changed.

Annual depreciation on Building = [Cost of building - salvage value ] / No of working life in years

Annual depreciation on building = [ $ 1,450,000 - $ 0 ] / 29 = $ 50,000

Annual depreciation on Equipment = [ Cost of equipment - Salvage value ] / No of working life in years

Annual depreciation on Equipment = [$ 70,000 - $ 0 ] / 7 = $ 10,000

Adjustment Entries

Date	Accounts title and explanation	Debit($)	Credit($)
December 31,2020	Depreciation Expense - Building	50,000
	Accumulated depreciation - Building		50,000
	[Adjustment entry for Annual depreciation expense on building ]
December 31 ,2020	Depreciation Expense - Equipment	10,000
	Accumulated depreciation - Equipment		10,000
	[Adjustment entry for Annual depreciation expense on Equipment ]

Murphy Company

Balance Sheet ( Partial)

Assets :	$	$
Non current assets :
Property ,Plant and equipment ( PPE)
Land		410,000
Building	1,450,000
Accumulated depreciation - Building	(50,000)
Building, Net		1,400,000
Equipment	70,000
Accumulated depreciation - Equipment	(10,000)
Equipment , Net		60,000
Property ,Plant and equipment , net		1,870,000

2) Adjustment Journal entry for earned interest income :

Date	Accounts title and explanation	Debit($)	Credit($)
December 31	Accrued Interest	2,200
	Interest Income		2,200
	[Interest revenue earned but not received ]

3) Annual depreciation expense on equipment = [Cost of equipment - salvage value ] / No of working life in years

Annual depreciation expense on equipment = [ $ 46,200 - $ 0 ] / 7 = $ 6,600

Adjustment Journal Entry

Date	Accounts title and explanation	Debit($)	Credit($)
December 31	Depreciation expense - Equipment	6,600
	Accumulated depreciation - Equipment		6,600
	[Adjustment entry made for depreciation on equipment ]

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