Question

The following transactions and adjusting entries were completed by a paper-packaging company called Gravure Graphics International during 2018 and 2019. The company uses straight-line depreciation for trucks and other vehicles, double-declining-balance depreciation for buildings, and straight-line amortization for patents.

2018
January		2		Paid $94,000 cash to purchase storage shed components.
January		3		Paid $4,000 cash to have the storage shed erected. The storage shed has an estimated life of 10 years and a residual value of $7,000.
April		1		Paid $37,000 cash to purchase a pickup truck for use in the business. The truck has an estimated useful life of five years and a residual value of $5,000.
May		13		Paid $300 cash for minor repairs to the pickup truck's upholstery.
July		1		Paid $21,000 cash to purchase patent rights on a new paper bag manufacturing process. The patent is estimated to have a remaining useful life of five years.
December		31		Recorded depreciation and amortization on the pickup truck, storage shed, and patent.
2019
June		30		Sold the pickup truck for $31,000 cash. (Record the depreciation on the truck prior to recording its disposal.)
December		31		Recorded depreciation on the storage shed. Also determined that the patent was impaired and wrote off its remaining book value (i.e., wrote down the book value to zero).

Required:

Prepare the journal entries required on each of the above dates. (If no entry is required for a transaction/event, select "No Journal Entry Required" in the first account field. Do not round intermediate calculations.)

Answer 1

No.	Date	General Journal	Debit	Credit
1	January 02, 2018	Buildings	94000
		Cash		94000
		(Storage shed components purchased for cash)
2	January 03, 2018	Buildings	4000
		Cash		4000
		(Erection costs paid in cash)
3	April 01, 2018	Equipment	37000
		Cash		37000
		(Pickup truck purchased for cash)
4	May 13, 2018	Repairs and maintenance expense	300
		Cash		300
		(Repairs to pickup truck paid in cash)
5	July 01, 2018	Patent	21000
		Cash		21000
		(Purchase of patents for cash)
6	December 31, 2018	Depreciation expense	24400
		Amortization expense ($21000/5 years x 6/12)	2100
		Accumulated depreciation-Building		19600
		Accumulated depreciation-Equipment		4800
		Accumulated amortization-Patent		2100
		(Depreciation and amortization expense for the year)
7	June 30, 2019	Depreciation expense	3200
		Accumulated depreciation-Equipment		3200
		(Depreciation expense on truck)
8	June 30, 2019	Cash	31000
		Accumulated depreciation-Equipment	8000
		Equipment		37000
		Gain on disposal		2000
		(Sale of truck for cash)
9	December 31, 2019	Depreciation expense	15680
		Accumulated depreciation-Building		15680
		(Depreciation expense on building)
10	December 31, 2019	Impairment loss	18900
		Patent		18900
		(Loss on impairment of patent)

Workings:

Straight-line depreciation on truck:

Annual depreciation = (Cost - Salvage value)/Estimated useful life = ($37000 - $5000)/5 years = $32000/5 = $6400

2018 depreciation for 9 months = $6400 x 9/12 = $4800

2019 depreciation for 6 months = $6400 x 6/12 = $3200

Double-declining depreciation on storage shed (Building):

Straight-line annual depreciation rate = 100%/Estimated useful life = 100%/10 years = 10%

DDB rate = 2 x 10% = 20%

Year	Book Value Beginning of Year	x	Depreciation Rate	=	Annual Depreciation Expense	End of Year
						Accumulated Depreciation	Book Value
								2018	98000		20%		19600	19600	78400
2019	78400		20%		15680	35280	62720