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 $100,000 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 $8,000. April 1 Paid $46,000 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 $6,000. May 13 Paid $400 cash for minor repairs to the pickup truck's upholstery. July 1 Paid $15,000 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 $39,000 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

Answer -

No.	Date	General Journal	Debit	Credit
1	Jan. 02, 2018	Building	$100000
		Cash		$100000
2	Jan. 03, 2018	Building	$5000
		Cash		$5000
3	Apr. 01, 2018	Equipment	$46000
		Cash		$46000
4	May 13, 2018	Repairs and maintenance expense	$400
		Cash		$400
5	Jul. 01, 2018	Patent	$15000
		Cash		$15000
6	Dec. 31, 2018	Depreciation expense ($21000 + $6000)	$27000
		Amortization expense	$1500
		Accumulated depreciation-Building		$21000
		Accumulated depreciation-Equipment		$6000
		Accumulated amortization-Patent		$1500
7	Jun. 30, 2019	Depreciation expense	$4000
		Accumulated depreciation-Equipment		$4000
8	Jun. 30, 2019	Cash	$39000
		Accumulated depreciation-Equipment ($4000 + $6000)	$10000
		Equipment		$46000
		Gain on disposal		$3000
9	Dec. 31, 2019	Depreciation expense	$16800
		Accumulated depreciation-Building		$16800
10	Dec. 31, 2019	Amortization expense ($15000 / 5 years)	$3000
		Accumulated amortization-Patent		$3000
11	Dec. 31, 2019	Accumulated amortization-Patent	$3000
		Amortization expense		$3000
12	Dec. 31, 2019	Accumulated amortization-Patent ($1500 + $3000)	$4500
		Impairment loss ($15000 - $4500)	$10500
		Patent		$15000

Calculation:

Dec. 31, 2018:

Depreciation expense-Building:

Using double declining balance method

= (Cost of asset / Useful life) * 2

= [($100000 + $5000) / 10 years] * 2

= $21000

Depreciation expense-Equipment:

Here, Pickup truck purchased on April 1, 2018

So,

Depreciation expense for only 9 months

Using Straight-line method:

= [(Cost of asset - Salvage value) / Useful life] * (9/12)

= [($46000 - $6000) / 5 years] * (9/12)

= $6000

Amortization expense-Patent:

Here, Patent purchased on July 1, 2018

So,

Amortization expense for only 6 months

= ($15000 / 5 years) * (6/12)

= $1500

Jun. 30, 2019:

Depreciation expense-Equipment:

Here, Pickup truck sold on June 30, 2019

So,

Depreciation expense for only 6 months

Using Straight-line method:

= [(Cost of asset - Salvage value) / Useful life] * (6/12)

= [($46000 - $6000) / 5 years] * (6/12)

= $4000

Dec. 31, 2019:

Depreciation expense-Building:

Cost of asset = ($105000 - $21000) = $84000

Using double declining balance method

= (Cost of asset / Useful life) * 2

= [$84000 / 10 years] * 2

= $16800

Amortization expense-Patent:

= ($15000 / 5 years)

= $3000