Insurance on a New Building During Its Construction

Listed below are costs (or discounts) to purchase or construct new plant assets. Indicate whether the costs should be expensed or capitalized (included in the cost of the plant assets on the balance sheet). For costs that should be capitalized, indicate in which category of plant assets (Equipment, Building, or Land) the related costs should be recorded on the balance sheet. Insurance on a new building during its construction Costs to clear and grade land purchased for a new plant Property tax on land incurred after it was purchased Parking ticket fees incurred by the delivery truck that illegally parked when delivering new equipment Costs to install needed electrical lines in a new building Permit charges incurred by a delivery driver to transport new equipment to the warehouse Costs charged by a contractor to install new equipment into the production line Janitorial costs incurred to clean equipment Capitalized – Building Capitalized – Land Expensed Expensed Capitalized – Building Capitalized – Equipment Capitalized – Equipment Expensed On January 1, the Matthews Band pays $67,600 for sound equipment. The band estimates it will use this equipment for four years and perform 200 concerts. It estimates that after four years it can sell the equipment for $1,000. During the first year, the band performs 45 concerts. Compute the first-year depreciation using the straight-line method. Choose Numerator: Cost minus salvage $66,600 Straight-Line Depreciation / Choose Denominator: = Annual Depreciation Expense / Estimated useful life (years) = Depreciation expense / 4 = $16,650 On January 1, the Matthews Band pays $67,600 for sound equipment. The band estimates it will use this equipment for four years and perform 200 concerts. It estimates that after four years it can sell the equipment for $1,000. During the first year, the band performs 45 concerts. Compute the first-year depreciation using the units-of-production method. (Cost – Salvage Value) / Total units of production Calculate the first year depreciation expense Depreciation per concert Concerts in first year Depreciation in first year $333 45 $14,985 On January 1, the Matthews Band pays $67,600 for sound equipment. The band estimates it will use this equipment for five years and after five years it can sell the equipment for $2,000. Matthews Band uses the straight-line depreciation but realizes at the start of the second year that this equipment will last only a total of three years. The salvage value is not changed. Compute the revised depreciation for both the second and third years. Book value at point of revision Remaining depreciable cost Depreciation per year for years 2 and 3 a. b. c. d. 1. 2. $54,320 $52,320 $26,160 Paid $62,000 cash to replace a motor on equipment that extends its useful life by four years. Paid $310 cash per truck for the cost of their annual tune-ups. Paid $248 for the monthly cost of replacement filters on an air-conditioning system. Completed an addition to a building for $348,750 cash. Classify the above transactions as either a revenue expenditure or a capital expenditure. Prepare the journal entries to record the four transactions from part 1. A Capital expenditure B Revenue expenditure C Revenue expenditure D Capital expenditure Transaction General Journal A Equipment Cash B Repairs Expense Cash C Repairs Expense Cash D Building Cash Debit 62,000 Credit 62,000 310 310 248 248 348,750 348,750 Identify the following as intangible assets, natural resources, or some other asset. Salt Mine Leasehold Trademark Copyright Patent Building Goodwill Oil well Customer list Natural Resources Intangible assets Intangible assets Intangible assets Intangible assets Other asset Intangible assets Natural resources Intangible assets Rizio Co. purchases a machine for $10,400, terms 1/10, n/60, FOB shipping point. Rizio paid within the discount period and took the $104 discount. Transportation costs of $235 were paid by Rizio. The machine required mounting and power connections costing $719. Another $339 is paid to assemble the machine and $40 of materials are used to get it into operation. During installation, the machine was damaged and $255 worth of repairs were made. Complete the below table to calculate the cost recorded for this machine. Amount included in cost of equipment: Invoice price of machine Less: Discount Net Purchase Price Assembly Materials used in adjusting Mounting and power connections Transportation Total cost to be recorded $10,400 104 10,296 339 40 719 235 $11,629 Rodriguez Company pays $336,960 for real estate with land, land improvements, and a building. Land is appraised at $215,000; land improvements are appraised at $64,500; and the building is appraised at $150,500. 1. Allocate the total cost among the three assets. 2. Prepare the journal entry to record the purchase. Appraised value Land Land Improvements Building $215,000 64,500 150,500 General Journal Land Land Improvements Building Cash Percent of total appraised value 50% 15% 35% X Total cost of acquisition X 336,960 X 336,960 X 336,960 Debit = Apportioned cost $168,480 50,544 117,936 Credit 168,480 50,544 117,936 336,960 On April 1, Cyclone Co. purchases a trencher for $292,000. The machine is expected to last five years and have a salvage value of $46,000. Compute depreciation expense at December 31 for both the first year and second year assuming the company uses the straight-line method. Year First year Second year Choose numerator Cost minus salvage $246,000 Annual depreciation $49,200 $49,200 / / / X X X Choose denominator Estimated useful life (years) 5 Fraction of year 9/12 12/12 = Annual depreciation = Annual depreciation = $49,200 = Depreciation Expense = $36,900 = $49,200 Oki Company pays $280,950 for equipment expected to last four years and have a $30,000 salvage value. Prepare journal entries to record the following costs related to the equipment. 1. Paid $18,100 cash for a new component that increased the equipment’s productivity. 2. Paid $4,525 cash for minor repairs necessary to keep the equipment working well. 3. Paid $11,050 cash for significant repairs to increase the useful life of the equipment from four to seven years. Transaction 1 2 3 General Journal Equipment Cash Repairs Expense Cash Equipment Cash Debit Credit 18,100 18,100 4,525 4,525 11,050 11,050 Diaz Company owns a machine that cost $125,900 and has accumulated depreciation of $92,700. Prepare the entry to record the disposal of the machine on January 1 in each separate situation. 1. The machine needed extensive repairs and was not worth repairing. Diaz disposed of the machine, receiving nothing in return. 2. Diaz sold the machine for $16,400 cash. 3. Diaz sold the machine for $33,200 cash. 4. Diaz sold the machine for $41,400 cash. N o 1 Date General Journal Jan 1 2 Jan 1 3 Jan 1 4 Jan 1 Accumulated depreciation—Machine Loss on disposal of machine Machine Cash Loss on sale of machine Accumulated depreciation—machine Machine Cash Accumulated depreciation—machine Machine Cash Accumulated depreciation—machine Machine Gain on sale of machine Debit Credit 92,700 33,200 125,900 16,400 16,800 92,700 125,900 33,200 92,700 125,900 41,400 92,700 125,900 8,200