Question

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Hadley Company purchased an asset with a list price of $132,140. Hadley paid $729 of transportation-in cost, $655 to train an employee to operate the equipment, and $503 to insure the asset against theft after it has been set up in the factory. The asset was purchased under terms 1/20/n30 and Hadley paid for the asset within the discount period. Based on this information, Hadley would capitalize the asset on its books at what dollar amount? $_______________

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On January 1, Year 1, Pearson Moving Company paid $34,900 cash to purchase a truck. The truck was expected to have a ten year useful life and an $3,100 salvage value. If Pearson uses the straight-line method, the amount of accumulated depreciation recognized on the Year 4 balance sheet is $_______

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Bridge City Consulting bought a building and the land on which it is located for $207,200 cash. The building is estimated to represent 56 percent of the purchase price. The company paid $86,390 for building renovations before it was ready for use.

When preparing the journal entry to record all expenditures related to the purchase and renovation, the debit to building would be $________

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Dillard Company starts the year with $10,000 in its cash account, $10,000 in its equipment account, $2,000 in accumulated depreciation and $18,000 in its retained earnings account. During the year Dillard sells the equipment for $8,570. After the sale of equipment is recorded, the retained earnings account will have a balance of $________.

Answer 1

Hadley Company purchased an asset with a list price of $132,140. Hadley paid $729 of transportation-in cost, $655 to train an employee to operate the equipment, and $503 to insure the asset against theft after it has been set up in the factory. The asset was purchased under terms 1/20/n30 and Hadley paid for the asset within the discount period. Based on this information, Hadley would capitalize the asset on its books at what dollar amount? $131467.1

Solu

1) Amount to be capitalised ( Amounts are in dollars)

List price- 132140

Transportation cost- 655

Total-132795

Less-Discount@1% 1327.95

Amount to be capitalised-131467.1

Note: a) The total cost of a capital asset consists of the purchase price of the asset, any installation charges and freight expenses incurred

b) "1/20, n/30" (or "1/20 net 30") on an invoice represents a cash (sales) discount provided by the seller to the buyer for prompt payment.

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2)On January 1, Year 1, Pearson Moving Company paid $34,900 cash to purchase a truck. The truck was expected to have a ten year useful life and an $3,100 salvage value. If Pearson uses the straight-line method, the amount of accumulated depreciation recognized on the Year 4 balance sheet is $12720

Solu:

Amount of depreciation each year= (34900-3100)/10=3180

4 years depreciation = 3180*4=12720

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3)

Bridge City Consulting bought a building and the land on which it is located for $207,200 cash. The building is estimated to represent 56 percent of the purchase price. The company paid $86,390 for building renovations before it was ready for use.

When preparing the journal entry to record all expenditures related to the purchase and renovation, the debit to building would be $202422

Solu:

Amount allocated to building- 116032(56% of 207200)

Renovation expense- 86390

Total 202422

Note: An asset is capitalised for all the expenses incurred for it before it was put to use.

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4)Dillard Company starts the year with $10,000 in its cash account, $10,000 in its equipment account, $2,000 in accumulated depreciation and $18,000 in its retained earnings account. During the year Dillard sells the equipment for $8,570. After the sale of equipment is recorded, the retained earnings account will have a balance of $14570

Solu:

Opening RE- 18000

Less:loss on sale of equpment: 1430

Less:Accum Depreciation: 2000

Balance: 14570