FINANCIAL ACCT.F/UNDERGRADS-W/ACCESS
FINANCIAL ACCT.F/UNDERGRADS-W/ACCESS
1st Edition
ISBN: 9781618531612
Author: Wallace, Nelson, Christensen, Ferris
Publisher: Cambridge
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Chapter 9, Problem 8AP

a.

To determine

Prepare journal entries to record the given transactions.

a.

Expert Solution
Check Mark

Explanation of Solution

Plant Assets:

Plant assets are the long-term assets used by the company, which have physical existence, and can be seen, touched and felt. Some of the examples of the plant assets include equipment, buildings, furniture and fixtures, plant, property, and land.

  1. 1. Prepare the journal entry to record the purchase of land and building for cash.
DateAccount Title and Explanation

Post

Ref.

Debit

($)

Credit

($)

Land90,000
Building810,000
Cash900,000
(To record the purchase of land, and building for cash)

Table (1)

Working Note:

Compute the amount to be recorded on the books for each of the assets.

AssetsFair Market Value (in $)Percent of total=(Market value of specific asset)(Market value of total assets)Allocation of the purchase price based on the percentage of total($900,000×Specific asset's percentage of total)
Land80,000$80,000$800,000 =10%90,000
Building720,000$720,000$800,000=90%810,000
Total$800,000$900,000

Table (2)

  • Land is an asset account. Since land is purchased, the Land account is increased. Therefore, debit Land account by $90,000.
  • Building is an asset account. Since building is purchased, the Building account is increased. Therefore, debit Building account by $810,000.
  • Cash is an asset account. Since cash is paid for group purchase, amount of cash has reduced. Therefore, credit Cash account by $900,000.
  1. 2. Prepare the journal entry to record the payment made for the construction of parking lot for customers.
DateAccount Title and Explanation

Post

Ref.

Debit

($)

Credit

($)

Land improvement31,200
Cash31,200
(To record the payment made for the land improvement)

Table (3)

  • Land improvement is an asset account and the Land account is increased. Therefore, debit Land account by $31,200.
  • Cash is an asset account and it decreases the value of asset. Therefore, credit Cash account by $31,200.
  1. 3. Prepare the journal entry to record the payment made for the construction of a new entrance.
DateAccount Title and Explanation

Post

Ref.

Debit

($)

Credit

($)

Building25,000
Cash25,000
(To record the payment made for the construction)

Table (4)

  • Building is an asset account and it increases the value of asset. Therefore, debit building account by $25,000.
  • Cash is an asset account and it decreases the value of asset. Therefore, credit Cash account by $25,000.
  1. 4. 5, and 6. Prepare the journal entry to record the purchase of store equipment and the payment made for the freight and repairs charges.
DateAccount Title and Explanation

Post

Ref.

Debit

($)

Credit

($)

Equipment78,760
Freight expenses240
Repair expenses1,650
Cash80,650
(To record the purchase of equipment, and the payment made for the freight and repair charges)

Table (5)

  • Equipment is an asset account. Since equipment is purchased, the equipment account is increased. Therefore, debit Equipment account by $78,760.
  • A freight expense is an expense account and it is increased by $240. Expenses are the component of stockholder’s Equity and it decreases the value of equity. Therefore, debit Freight expenses account with $240.
  • A repair expense is an expense account and it is increased by $1,650. Expenses are the component of stockholder’s Equity and it decreases the value of equity. Therefore, debit Repair expenses account with $1,650.
  • Cash is an asset account and it decreases the value of asset. Therefore, credit Cash account by $80,650.

7. Prepare the journal entry to record the payment made for the umbrella holder.

DateAccount Title and Explanation

Post

Ref.

Debit

($)

Credit

($)

Building-Umbrella holder55
Cash55
(To record the payment made for the construction)

Table (6)

  • Building-umbrella holder is an expense account and it is increased by $55. Expenses are the component of stockholder’s Equity and it decreases the value of equity. Therefore, debit Building-umbrella holder account with $55.
  • Cash is an asset account and it decreases the value of asset. Therefore, credit Cash account by $55.

b.

To determine

Prepare journal entire to record the depreciation expenses for the year-end December 31.

b.

Expert Solution
Check Mark

Explanation of Solution

Depreciation expense:

Depreciation expense is a non-cash expense, which is recorded on the income statement reflecting the consumption of economic benefits of long-term asset.

Straight-Line Method:

In straight-line deprecation method the asset is used evenly throughout its useful life. This is because the amount of depreciation in straight line remains same for all the years of the useful life of the asset.

Double declining balance method:

Under the Double declining balance method, the asset is used twice the rate of straight-line method of the declining balance of the asset. This is because in order to determine the declining balance depreciation rate, the annual depreciation under straight-line method is multiplied with 2.

Prepare the journal entries to record the depreciation expenses for building under straight line method as follows:

DateAccount Title and Explanation

Post

Ref.

Debit

($)

Credit

($)

Depreciation Expense (E–) (1)31,000
Accumulated Depreciation –          Building (A–)31,000
(To record depreciation expense for building)

Table (7)

Description:

  • Depreciation Expense is an expense account and it is increased by $31,000. Expenses are the component of stockholder’s Equity and it decreases the value of equity. Therefore, debit Depreciation Expenses account with $31,000.
  • Accumulated Depreciation is a contra-asset account and would have a normal credit balance. Therefore, credit Accumulated Depreciation account with $31,000.

Working Notes:

Compute depreciation expense:

Depreciation = [Acquisition cost of building+Buidling(New entrance) – Salvage value]Useful life$810,00+$25,000$60,00025 years= $31,000 (1)

Prepare the journal entries to record the depreciation expenses for Parking lot under straight line method as follows:

DateAccount Title and Explanation

Post

Ref.

Debit

($)

Credit

($)

Depreciation Expense (E–) (2)2,600
Accumulated Depreciation –          Parking lot (A–)2,600
(To record depreciation)

Table (8)

Description:

  • Depreciation Expense is an expense account and it is increased by $2,600. Expenses are the component of stockholder’s Equity and it decreases the value of equity. Therefore, debit Depreciation Expenses account with $2,600.
  • Accumulated Depreciation is a contra-asset account and would have a normal credit balance. Therefore, credit Accumulated Depreciation account with $2,600.

Working Notes:

Compute depreciation expense:

Depreciation = [Parking lot – Salvage value]Useful life$31,200012 years= $2,600 (2)

Prepare the journal entries to record the depreciation expenses for equipment under double declining method as follows:

DateAccount Title and Explanation

Post

Ref.

Debit

($)

Credit

($)

Depreciation Expense (E–) (5)17,284.25
Accumulated Depreciation –          Equipment (A–)17,284.25
(To record depreciation expense)

Table (9)

Description:

  • Depreciation Expense is an expense account and it is increased by $17,284.25. Expenses are the component of stockholder’s Equity and it decreases the value of equity. Therefore, debit Depreciation Expenses account with $17,284.25.
  • Accumulated Depreciation is a contra-asset account and would have a normal credit balance. Therefore, credit Accumulated Depreciation account with $17,284.25.

Working Notes:

Compute depreciation expense:

Double declining rate = [1008years]×2=25% (3)

Acquisition costof Equipment} = [Equipment valueSales tax (7%)]+[Freight expense+repair expenses]=[$78,760$5,513]+$240+$1,650= $75,137 (4)

Depreciation = [Acquisition cost ofEquipment– Salvage value]×Double declining rate=[$75,760$6,000]×25100= $17,284.25 (5)

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Chapter 9 Solutions

FINANCIAL ACCT.F/UNDERGRADS-W/ACCESS

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