Journalize the following transactions in the accounts of Lamp Light Company, a restaurant supply company that uses the allowance method of accounting for uncollectible receivables:Mar. 19. Sold merchandise on account to Midnight Delights Co., $37,500. The cost of the merchandise sold was $23,000.Aug. 31. Received $22,000 from Midnight Delights Co. and wrote off the remainder owed on the sale of March 19 as uncollectible.Dec. 22. Reinstated the account of Midnight Delights Co. that had been written off on August 31 and received $15,500 cash in full payment.Answer:
Mar. 19 Accounts Receivable—Midnight Delights Co. 37,500Sales 37,50019 Cost of Merchandise Sold 23,000Merchandise Inventory 23,000Aug. 31 Cash 22,000Allowance for Doubtful Accounts 15,500Accounts Receivable—Midnight Delights Co. 37,500Dec. 22 Accounts Receivable—Midnight Delights Co. 15,500Allowance for Doubtful Accounts 15,50022 Cash 15,500Accounts Receivable—Midnight Delights Co. 15,500
Creative Solutions Company, a computer consulting firm, has decided to write off the $11,750 balance of an account owed by a customer, Wil Treadwell. Journalize the entry to record the writeoff, assuming that (a) the direct write-off method is used and (b) the allowance method is used.Answer:
a. Bad Debt Expense 11,750Accounts Receivable—Wil Treadwell 11,750b. Allowance for Doubtful Accounts 11,750Accounts Receivable—Wil Treadwell 11,750
A diesel-powered tractor with a cost of $214,000 and estimated residual value of $30,000 is expected to have a useful operating life of 50,000 hours. During January, the tractor was operated 175 hours. Determine the depreciation for the month.Answer:
$214,000 – $30,00050,000 hours= $3.68 depreciation per hour175 hours at $3.68 = $644 depreciation for January
Quality Move Company made the following expenditures on one of its delivery trucks:Mar. 20. Replaced the transmission at a cost of $1,890.June 11. Paid $1,350 for installation of a hydraulic lift.Nov. 30. Paid $55 to change the oil and air filter.Prepare journal entries for each expenditure.Answer:
Mar. 20 Accumulated Depreciation—Delivery Truck 1,890Cash 1,890June 11 Delivery Truck 1,350Cash 1,350Nov. 30 Repairs and Maintenance Expense 55Cash 55
A Kubota tractor acquired on January 6 at a cost of $90,000 has an estimated useful life of 20 years. Assuming that it will have no residual value, determine the depreciation for each of the first two years (a) by the straight-line method and (b) by the doubledeclining-balance method.Answer:
a.First Year5% of $90,000 = $4,500or$90,000 ÷ 20 = $4,500Second Year5% of $90,000 = $4,500or$90,000 ÷ 20 = $4,500b. 10% of $90,000 = $9,000 10% of ($90,000 – $9,000) = $8,100
A storage tank acquired at the beginning of the fiscal year at a cost of $240,000 has an estimated residual value of $30,000 and an estimated useful life of 25 years. Determine the following: (a) the amount of annual depreciation by the straight-line method and (b) the amount of depreciation for the first and second years computed by the doubledeclining-balance method.Answer:a.4% of ($240,000 – $30,000) = $8,400 or [($240,000 – $30,000)/25]b.Year 1: 8% of $240,000 = $19,200Year 2: 8% of ($240,000 – $19,200) = $17,664
Prior to adjustment at the end of the year, the balance in Trucks is $296,900 and the balance in Accumulated Depreciation—Trucks is $99,740. Details of the subsidiary ledger are as follows:
TruckNo. CostEstimatedResidualValueEstimatedUsefulLifeAccumulatedDepreciationat Beginningof YearMilesOperatedDuringYear1 $80,000 $15,000 250,000 miles — 21,000 miles2 54,000 6,000 300,000 $14,400 33,5003 72,900 10,900 200,000 60,140 8,0004 90,000 22,800 240,000 25,200 22,500a. Determine the depreciation rates per mile and the amount to be credited to the accumulated depreciation section of each of the subsidiary accounts for the miles operated during the current year.b. Journalize the entry to record depreciation for the year.Answer:
a. Depreciation Rate per Mile:Truck #1 ($80,000 – $15,000) ÷ 250,000 = $0.26Truck #2 ($54,000 – $6,000) ÷ 300,000 = $0.16Truck #3 ($72,900 – $10,900) ÷ 200,000 = $0.31Truck #4 ($90,000 – $22,800) ÷ 240,000 = $0.28Credit toAccumulatedTruck No. Rate per Mile Miles Operated Depreciation1 $0.26 21,000 $ 5,4602 0.16 33,500 5,3603 0.314 0.288,00022,5001,860 * 6,300Total……………………………………………………………… $18,980* Mileage depreciation of $2,480 (31 cents × 8,000) is limited to $1,860, which reducesthe book value of the truck to $10,900, its residual value.
b. Depreciation Expense—Trucks 18,980Accumulated Depreciation—Trucks 18,980Truck depreciation.
Willow Creek Company purchased and installed carpet in its new general offices on April 30 for a total cost of $18,000. The carpet is estimated to have a 15-year useful life and no residual value.a. Prepare the journal entry necessary for recording the purchase of the new carpet.b. Record the December 31 adjusting entry for the partial-year depreciation expense for the carpet, assuming that Willow Creek Company uses the straight-line method.Answer:
a. Apr. 30 Carpet 18,000Cash 18,000b. Dec. 31 Depreciation Expense 800Accumulated Depreciation—Carpet 800Carpet depreciation[($18,000 ÷ 15 years) × 8/12].
Sandblasting equipment acquired at a cost of $36,000 has an estimated residual value of $6,000 and an estimated useful life of 10 years. It was placed into service on April 1 of the current fiscal year, which ends on December 31. Determine the depreciation for the current fiscal year and for the following fiscal year by (a) the straight-line method and (b) the double-declining-balance method.Answer:a.Year 1: 9/12 × [($36,000 – $6,000) ÷ 10] = $2,250Year 2: ($36,000 – $6,000) ÷ 10 = $3,000b.Year 1: 9/12 × 20% of $36,000 = $5,400Year 2: 20% of ($36,000 – $5,400) = $6,120
A building with a cost of $780,000 has an estimated residual value of $90,000, has an estimated useful life of 40 years, and is depreciated by the straight-line method. (a) What is the amount of the annual depreciation? (b) What is the book value at the end of the twenty-fourth year of use? (c) If at the start of the twenty-fifth year it is estimated that the remaining life is 10 years and that the residual value is $70,000, what is the depreciation expense for each of the remaining 10 years?Answer:a. $17,250 [($780,000 – $90,000) ÷ 40]b. $366,000 [$780,000 – ($17,250 × 24 yrs.)]c. $29,600 [($366,000 – $70,000) ÷ 10 yrs.]
Equipment acquired on January 8, 2011, at a cost of $420,000, has an estimated useful life of 15 years, has an estimated residual value of $30,000, and is depreciated by the straight-line method.a. What was the book value of the equipment at December 31, 2014, the end of the year?b. Assuming that the equipment was sold on October 1, 2015, for $275,000, journalize the entries to record (1) depreciation for the nine months until the sale date, and (2) the sale of the equipment.Answer:
a. Cost of equipment……………………………………………………………………………… $420,000Accumulated depreciation at December 31, 2014(4 years at $26,000* per year)……………………………………………………………… 104,000Book value at December 31, 2014…………………………………………………………… $316,000* ($420,000 – $30,000) ÷ 15 = $26,000b. (1) Depreciation Expense—Equipment 19,500Accumulated Depreciation—Equipment 19,500Equipment depreciation ($26,000 × 9/12 = $19,500).(2) Cash 275,000Accumulated Depreciation—Equipment* 123,500Loss on Sale of Equipment 21,500Equipment 420,000* $104,000 + $19,500 = $123,500
Equipment acquired on January 6, 2011, at a cost of $714,000, has an estimated useful life of 12 years and an estimated residual value of $44,400.a. What was the annual amount of depreciation for the years 2011, 2012, and 2013, using the straight-line method of depreciation?b. What was the book value of the equipment on January 1, 2014?c. Assuming that the equipment was sold on January 3, 2014, for $525,000, journalize the entry to record the sale.d. Assuming that the equipment had been sold on January 3, 2014, for $560,000 instead of $525,000, journalize the entry to record the sale.Answer:
a. 2011 depreciation expense: $55,800 [($714,000 – $44,400) ÷ 12]2012 depreciation expense: $55,8002013 depreciation expense: $55,800b. $546,600 [$714,000 – ($55,800 × 3)]c. Cash 525,000Accumulated Depreciation—Equipment 167,400Loss on Sale of Equipment 21,600Equipment 714,000d. Cash 560,000Accumulated Depreciation—Equipment 167,400Equipment 714,000Gain on Sale of Equipment 13,400
Crazy Jim’s Mining Co. acquired mineral rights for $21,750,000. The mineral deposit is estimated at 15,000,000 tons. During the current year, 3,600,000 tons were mined and sold.a. Determine the amount of depletion expense for the current year.b. Journalize the adjusting entry to recognize the depletion expense.Answer:
a. $21,750,000 ÷ 15,000,000 tons = $1.45 depletion per ton3,600,000 tons × $1.45 = $5,220,000 depletion expense
b. Depletion Expense 5,220,000Accumulated Depletion 5,220,000Depletion of mineral deposit.
Voss Company acquired patent rights on January 6, 2011, for $480,000. The patent has a useful life equal to its legal life of eight years. On January 3, 2014, Voss successfully defended the patent in a lawsuit at a cost of $80,000.a. Determine the patent amortization expense for the current year ended December 31, 2014.b. Journalize the adjusting entry to recognize the amortization.Answer:
a. ($480,000 ÷ 8) + ($80,000 ÷ 5) = $76,000 total patent expense b.
Amortization Expense—Patents 76,000Patents 76,000Amortized patent rights ($60,000 + $16,000).
