Walker Motel recently purchased new exercise equipment for its exercise room. The followinginformation refers to the purchase and installation of this equipment: 1. The list price of the equipment was $40,000; however, Walker qualified for a “special dis-count” of $5,000. It paid $10,000 cash for the equipment, and issued a three-month, 12 percent note payable for the remaining balance. The note, plus accrued interest charges of $750, waspaid promptly at the maturity date.2. In addition to the amounts described in 1, Walker paid sales taxes of $2,100 at the date ofpurchase.3. Freight charges for delivery of the equipment totaled $600.4. Installation and training costs related to the equipment amounted to $900.5. During installation, one of the pieces of equipment was accidentally damaged by an employee.It cost the motel $400 to repair this damage.6. As soon as the equipment was installed, the motel paid $3,200 to print brochures featuring theexercise room’s new, state-of-the-art exercise facilities.Instructionsa. In one sentence, make a general statement summarizing the nature of expenditures that qualifyfor inclusion in the cost of plant assets such as exercise equipment.b. For each of the six numbered paragraphs, indicate which items should be included by Walkerin the total cost debited to its Equipment account. Also briefly indicate the proper accountingtreatment of those items that are not included in the cost of the equipment.c. Compute the total cost debited to the motel’s Equipment account. d. Prepare a journal entry at the end of the current year to record depreciation on the exer-cise equipment. Walker Motel will depreciate this equipment by the straight-line method (half-year convention) over an estimated useful life of five years. Assume a zero residualvalue.
Walker Motel recently purchased new exercise equipment for its exercise room. The following
information refers to the purchase and installation of this equipment:
1. The list price of the equipment was $40,000; however, Walker qualified for a “special dis-
count” of $5,000. It paid $10,000 cash for the equipment, and issued a three-month, 12 percent
note payable for the remaining balance. The note, plus accrued interest charges of $750, was
paid promptly at the maturity date.
2. In addition to the amounts described in 1, Walker paid sales taxes of $2,100 at the date of
purchase.
3. Freight charges for delivery of the equipment totaled $600.
4. Installation and training costs related to the equipment amounted to $900.
5. During installation, one of the pieces of equipment was accidentally damaged by an employee.
It cost the motel $400 to repair this damage.
6. As soon as the equipment was installed, the motel paid $3,200 to print brochures featuring the
exercise room’s new, state-of-the-art exercise facilities.
Instructions
a. In one sentence, make a general statement summarizing the nature of expenditures that qualify
for inclusion in the cost of plant assets such as exercise equipment.
b. For each of the six numbered paragraphs, indicate which items should be included by Walker
in the total cost debited to its Equipment account. Also briefly indicate the proper accounting
treatment of those items that are not included in the cost of the equipment.
c. Compute the total cost debited to the motel’s Equipment account.
d. Prepare a
cise equipment. Walker Motel will
(half-year convention) over an estimated useful life of five years. Assume a zero residual
value.
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