Question

PA9-4 Recording Transactions and Adjustments for Tangible and Intangible Assets [LO 9-1, LO 9-2, LO 9-3, LO 9-4, LO 9-5, LO 9-6] 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 $95,000 cash to purchase storage shed components. January 3 Paid $5,000 cash to have the storage shed erected. The storage shed has an estimated life of 10 years and a residual value of $10,000. April 1 Paid $38,000 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 $8,000. May 13 Paid $250 cash for minor repairs to the pickup truck's upholstery. July 1 Paid $20,000 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 $33,000 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.)

Can you also explain how did you get the answer ?

Answer 1

	Storage		truck		Patent
Purchase price	95000	Purchase price	38000	Price	20000
Erection expenses	5000	residual value	8000	useful life	5
Total price	100000	Depreciable value	30000
Less:Residual value	10000	useful life	5	depreciation	4000
Depreciable value	90000
Life of the asset	10	Depreciation	30000/5 = 6000
Annual depreciation rate	100%/10 =10%
Depreciation rate for double declining	10% x 2 = 20%
Therefore depreciation(100000*20%)	20000
Book value on jan 1 (100000-20000)	80000
Depreciation for 2019
80000 x 20%	16000
	64000

Date	Particulars	Debit	Credit
31-Dec-18	Amortization expense	4000
	Depreciation expense	26000
	Accumulated depreciation-Building		20000
	Accumulated depreciation-Equipment		6000
	Accumulated amortization-Patent		4000
	( being depreciation and amortization charged)
30-Jun-19	Depreciation expense	3000		(6000 x 6/12)
	Accumulated depreciation-Equipment		3000
	( being depreciation charged for 6 months)
30-Jun-19	Cash	33000
	Truck		29000	(38000-6000-3000)
	Profit on sale		4000
	(being truck sold)
31-Dec-19	Depreciation expense	16000
	Accumulated depreciation-Building		16000
	( being depreciation charged)
31-Dec-19	Depreciation expense	4000
	Accumulated amortization-Patent		4000
	( being amortization charged)
31-Dec-19	Accumulated amortization-Patent	8000
	patent		8000