Question

1. Entity A is a local construction company, which provides construction services to different types of customers. On 16 December 2017, Entity A ordered a concrete plant from Entity B. The listed price of the plant is $650,000 for general customers. However, Entity B offers a 10% trade discount to Entity A because it is one of its loyal customers. The plant was delivered to Entity A on 1 January 2018. According to the contract, Entity B provides a 2-month credit period to Entity A. Finally, Entity A fully settled the outstanding amount on 1 February 2018.

   Installation and testing services are required to make the plant ready for use. On 1 January 2018, Entity C, the installation and testing service provider completed the concrete plant installation and testing services and certified the plant was really for use by Entity A. The cost of installation and testing services are $5,000 and it was settled with Entity C by cheque on 1 January 2018. At the inception stage, Entity A expected the useful life of the concrete plant is 5 years.

   According to the local environmental protection regulation, Entity A is required to remove the concrete plant at the end of the reporting period in the Year 2022. The removal cost of $5,100 and the plant residual value of $4,013 was estimated at the inception of the contract respectively.

   Finally, on 31 December 2022, the removal cost incurred was the same as the estimated amount and it will be paid in the first week of the Year 2023. However, the residual of the concrete plant can be sold by $1,900 only. A cheque was received on the same date.

   Entity A always applies to discount with a rate of 8.05%.

   REQUIRED:

   According to relevant accounting standards, prepare journal entries to record the transactions of Entity A on 16 December 2017, 31 December 2017, 1 January 2018, 1 February 2018, 31 December 2018, 1 January 2020 and 31 December 2020, 1 January 2022 and 31 December 2022.

   ACCOUNT NAMES FOR INPUT:

   | PPE | Bank | Inventory | Revenue | Cost of sales | Payable | Receivable |

   | Restoration liability | Interest expense | Interest revenue | Depreciation | Accum. depreciation |

   | Loss on disposal | Gain on disposal | Share capital | Retained earnings | No entry |

   ANSWERS:

   Journal Entries:

   Date	Account Name	Debit ($)	Credit ($)	Hints For Items If Necessary
   16-Dec-17	Blank 1	Blank 2
   	Blank 3		Blank 4
   31-Dec-17	Blank 5	Blank 6
   	Blank 7		Blank 8
   1-Jan-18	Blank 9	Blank 10
   	Blank 11	Blank 12		Purchase price. Judge Dr/Cr side.
   	Blank 13	Blank 14		Directly attributable cost. Judge Dr/Cr side.
   	Blank 15	Blank 16		Dismantling cost. Judge Dr/Cr side.
   1-Feb-18	Blank 17	Blank 18
   	Blank 19		Blank 20
   31-Dec-18	Blank 21	Blank 22		An interest created due to the dismantling cost.
   	Blank 23		Blank 24
   31-Dec-18	Blank 25	Blank 26
   	Blank 27		Blank 28
   1-Jan-20	Blank 29	Blank 30
   	Blank 31		Blank 32
   31-Dec-20	Blank 33	Blank 34		An interest created due to the dismantling cost.
   	Blank 35		Blank 36
   31- Dec-20	Blank 37	Blank 38
   	Blank 39		Blank 40
   1-Jan-22	Blank 41	Blank 42
   	Blank 43		Blank 44
   31-Dec-22	Blank 45	Blank 46		An interest created due to the dismantling cost.
   	Blank 47		Blank 48
   31-Dec-22	Blank 49	Blank 50
   	Blank 51		Blank 52
   31-Dec-22	Blank 53	Blank 54		The settlement of dismantling cost.
   	Blank 55		Blank 56
   31-Dec-22	Blank 57	Blank 58		The disposal of the concrete plant.
   	Blank 59		Blank 60
   	Blank 61	Blank 62
   	Blank 63	Blank 64		The gain or loss on disposal.  Judge Dr/Cr side.

Answer 1

Date	Account Name	Debit ($)	Credit ($)	Hints For Items If Necessary
16-Dec-17	-	-		No entry required as only order has been raised
	-		-
31-Dec-17	-	-		No entry required as only order has been raised, even at the end of year
	-		-
01-Jan-18	PPE	593,462.95
	Payable to B		585,000.00	Purchase price. Judge Dr/Cr side.
	Bank (Payable to C)		5,000.00	Directly attributable cost. Judge Dr/Cr side.
	Restoration Liability (5100*.067901)		3,462.95	Dismantling cost. Judge Dr/Cr side.
01-Feb-18	Payable to B	585,000.00
	Bank		585,000.00
31-Dec-18	Interest expense	278.77		An interest created due to the dismantling cost.
	Restoration Liability		278.77
31-Dec-18	Depreciation expense	117,889.99
	Accumulated depreciation		117,889.99
01-Jan-20	-	-		No entry
	-		-
31-Dec-20	Interest expense	325.46		An interest created due to the dismantling cost.
	Restoration Liability		325.46
31-Dec-20	Depreciation expense	117,889.99
	Accumulated depreciation		117,889.99
01-Jan-22	-	-		No entry
	-		-
31-Dec-22	Interest expense	351.65		An interest created due to the dismantling cost.
	Restoration Liability		351.65
31-Dec-22	Depreciation expense	117,889.99
	Accumulated depreciation		117,889.99
31-Dec-22	Restoration liability	5,100.00		The settlement of dismantling cost.
	Bank		5,100.00
31-Dec-22	Accumulated Depr.	589,449.95		The disposal of the concrete plant.
	PPE		593,462.95
	Bank	1,900
	Loss on disposal	2,113		The gain or loss on disposal.  Judge Dr/Cr side.