91Ó°ÊÓ

(Analysis of Subsequent Expenditures) The following transactions occurred during 2017. Assume that depreciation of 10% per year is charged on all machinery and 5% per year on buildings, on a straight-line basis, with no estimated salvage value. Depreciation is charged for a full year on all fixed assets acquired during the year, and no depreciation is charged on fixed assets disposed of during the year.

Jan. 30 A building that cost \(132,000 in 2000 is torn down to make room for a

New building. The wrecking contractor was paid \)5,100 and was

permitted to keep all materials salvaged.

Mar. 10 Machinery that was purchased in 2010 for \(16,000 is sold for \)2,900

cash, f.o.b. purchaser’s plant. Freight of \(300 is paid on the sale of this

machinery.

Mar. 20 A gear breaks on a machine that cost \)9,000 in 2009. The gear is

replaced at a cost of \(2,000. The replacement does not extend the

useful life of the machine but does make the machine more efficient.

May 18 A special base installed for a machine in 2011 when the machine was

purchased has to be replaced at a cost of \)5,500 because of defective

workmanship on the original base. The cost of the machinery was

\(14,200 in 2011. The cost of the base was \)3,500, and this amount was

charged to the Machinery account in 2011.

June 23 One of the buildings is repainted at a cost of $6,900. It had not been

painted since it was constructed in 2013.

Instructions

Prepare general journal entries for the transactions. (Round to the nearest dollar.)

Step by step solution

01

Meaning of Subsequent Expenditure

Those expenses incurred after an asset is recognized in the financial statement and transported to the location and condition intendedare termed subsequent expenditures. These expenses may include repairs, maintenance, overhauls, upgrades, and replacements.

02

(a) Preparing journal entries

Date	Particular	Debit ($)	Credit ($)
Jan. 30, 2017	Accumulated Depreciation-Buildings	112,200
	Loss on Disposal of Buildings	24,900
	Buildings		132,000
	Cash		5,100

Working notes:

Calculation of accumulated depreciation-Building

$\begin{array}{rcl}\mathit{A}\mathit{c}\mathit{c}\mathit{u}\mathit{m}\mathit{u}\mathit{l}\mathit{a}\mathit{t}\mathit{e}\mathit{d}\mathbf{}\mathit{d}\mathit{e}\mathit{p}\mathit{r}\mathit{e}\mathit{c}\mathit{i}\mathit{a}\mathit{t}\mathit{i}\mathit{o}\mathit{n}& \mathbf{=}& \mathbf{(}\mathit{B}\mathit{u}\mathit{i}\mathit{l}\mathit{d}\mathit{i}\mathit{n}\mathit{g}\mathbf{}\mathit{c}\mathit{o}\mathit{s}\mathit{t}\mathbf{×}\mathit{D}\mathit{e}\mathit{p}\mathit{r}\mathit{e}\mathit{c}\mathit{i}\mathit{a}\mathit{t}\mathit{i}\mathit{o}\mathit{n}\mathbf{}\mathit{r}\mathit{a}\mathit{t}\mathit{e}\mathbf{)}\mathbf{×}\mathit{Y}\mathit{e}\mathit{a}\mathit{r}\\ & \mathbf{=}& \left(\$132,00×5\%\right)\mathbf{×}\mathbf{17}\\ & \mathbf{=}& \mathbf{\$}\mathbf{6}\mathbf{,}\mathbf{600}\mathbf{×}\mathbf{17}\\ & \mathbf{=}& \mathbf{\$}\mathbf{112}\mathbf{,}\mathbf{200}\end{array}$

Calculating the amount of loss on disposal of buildings

$\begin{array}{rcl}\mathit{L}\mathit{o}\mathit{s}\mathit{s}\mathbf{}\mathit{o}\mathit{n}\mathbf{}\mathit{d}\mathit{i}\mathit{s}\mathit{p}\mathit{o}\mathit{s}\mathit{a}\mathit{l}\mathbf{}\mathit{o}\mathit{f}\mathbf{}\mathit{b}\mathit{u}\mathit{i}\mathit{l}\mathit{d}\mathit{i}\mathit{n}\mathit{g}& \mathbf{=}& \mathit{B}\mathit{u}\mathit{i}\mathit{l}\mathit{d}\mathit{i}\mathit{n}\mathit{g}\mathbf{}\mathit{c}\mathit{o}\mathit{s}\mathit{t}\mathbf{-}\mathit{A}\mathit{c}\mathit{c}\mathit{u}\mathit{m}\mathit{u}\mathit{l}\mathit{a}\mathit{t}\mathit{e}\mathit{d}\mathbf{}\mathit{d}\mathit{e}\mathit{p}\mathit{r}\mathit{e}\mathit{c}\mathit{i}\mathit{a}\mathit{t}\mathit{i}\mathit{o}\mathit{n}\mathbf{+}\mathit{C}\mathit{a}\mathit{s}\mathit{h}\\ & \mathbf{=}& \left(\$132,00-\$112,200\right)\mathbf{+}\mathbf{\$}\mathbf{5}\mathbf{,}\mathbf{100}\\ & \mathbf{=}& \mathbf{\$}\mathbf{19}\mathbf{,}\mathbf{800}\mathbf{+}\mathbf{\$}\mathbf{5}\mathbf{,}\mathbf{100}\\ & \mathbf{=}& \mathbf{\$}\mathbf{24}\mathbf{,}\mathbf{900}\end{array}$

03

(b) Preparing journal entries

Date	Particular	Debit ($)	Credit ($)
Mar. 10, 2017	Cash	2,600
	Accumulated Depreciation-Machinery	11,200
	Loss on Disposal of Machinery	2,200
	Machinery		16,000

Working notes:

Calculation of accumulated depreciation-Machinery

$\begin{array}{rcl}\mathit{A}\mathit{c}\mathit{c}\mathit{u}\mathit{m}\mathit{u}\mathit{l}\mathit{a}\mathit{t}\mathit{e}\mathit{d}\mathbf{}\mathit{d}\mathit{e}\mathit{p}\mathit{r}\mathit{e}\mathit{c}\mathit{i}\mathit{a}\mathit{t}\mathit{i}\mathit{o}\mathit{n}& \mathbf{=}& \left(Machinerycost×Depreciationrate\right)\mathbf{×}\mathit{Y}\mathit{e}\mathit{a}\mathit{r}\\ & \mathbf{=}& \left(\$16,000×10\%\right)\mathbf{7}\\ & \mathbf{=}& \mathbf{\$}\mathbf{1}\mathbf{,}\mathbf{600}\mathbf{×}\mathbf{7}\\ & \mathbf{=}& \mathbf{\$}\mathbf{11}\mathbf{,}\mathbf{200}\end{array}$

Calculating the amount of loss on disposal of machinery

$\begin{array}{rcl}\mathit{L}\mathit{o}\mathit{s}\mathit{s}\mathbf{}\mathit{o}\mathit{n}\mathbf{}\mathit{d}\mathit{i}\mathit{s}\mathit{p}\mathit{o}\mathit{s}\mathit{a}\mathit{l}\mathbf{}\mathit{o}\mathit{f}\mathbf{}\mathit{m}\mathit{a}\mathit{c}\mathit{h}\mathit{i}\mathit{n}\mathit{e}\mathit{r}\mathit{y}& \mathbf{=}& \left(Machinerycost-Accumulateddepreciation\right)\mathbf{+}\mathit{F}\mathit{r}\mathit{e}\mathit{i}\mathit{g}\mathit{h}\mathit{t}\mathbf{-}\mathit{S}\mathit{o}\mathit{l}\mathit{d}\mathbf{}\mathit{v}\mathit{a}\mathit{l}\mathit{u}\mathit{e}\\ & \mathbf{=}& \left(\$16,000-\$11,200\right)\mathbf{+}\mathbf{\$}\mathbf{300}\mathbf{-}\mathbf{\$}\mathbf{2}\mathbf{,}\mathbf{900}\\ & \mathbf{=}& \mathbf{\$}\mathbf{4}\mathbf{,}\mathbf{800}\mathbf{-}\mathbf{\$}\mathbf{2}\mathbf{,}\mathbf{900}\mathbf{+}\mathbf{\$}\mathbf{300}\\ & \mathbf{=}& \mathbf{\$}\mathbf{2}\mathbf{,}\mathbf{200}\end{array}$

04

(c) Preparing journal entries

Date	Particular	Debit ($)	Credit ($)
Mar. 20, 2017	Machinery	2,000
	Cash		2,000

The gear that is replaced at a cost of $2,000 should be debited as machinery and credited as cash.

05

(d) Preparing journal entries

Date	Particular	Debit ($)	Credit ($)
May 18, 2017	Machinery	5,500
	Accumulated Depreciation-Machinery	2,100
	Loss on Disposal of Machinery	1,400
	Machinery		3,500
	Cash		5,500

Working notes:

Calculation of accumulated depreciation-Machinery

$\begin{array}{rcl}\mathit{A}\mathit{c}\mathit{c}\mathit{u}\mathit{m}\mathit{u}\mathit{l}\mathit{a}\mathit{t}\mathit{e}\mathit{d}\mathbf{}\mathit{d}\mathit{e}\mathit{p}\mathit{r}\mathit{e}\mathit{c}\mathit{i}\mathit{a}\mathit{t}\mathit{i}\mathit{o}\mathit{n}& \mathbf{=}& \left(Machinerycost×Depreciationrate\right)\mathbf{×}\mathit{Y}\mathit{e}\mathit{a}\mathit{r}\\ & \mathbf{=}& \left(\$3,500×10\%\right)\mathbf{×}\mathbf{6}\\ & \mathbf{=}& \mathbf{\$}\mathbf{350}\mathbf{×}\mathbf{6}\\ & \mathbf{=}& \mathbf{\$}\mathbf{2}\mathbf{,}\mathbf{100}\end{array}$

Calculating the amount of loss on disposal of machinery

$\begin{array}{rcl}\mathit{L}\mathit{o}\mathit{s}\mathit{s}\mathbf{}\mathit{o}\mathit{n}\mathbf{}\mathit{d}\mathit{i}\mathit{s}\mathit{p}\mathit{o}\mathit{s}\mathit{a}\mathit{l}\mathbf{}\mathit{o}\mathit{f}\mathbf{}\mathit{m}\mathit{a}\mathit{c}\mathit{h}\mathit{i}\mathit{n}\mathit{e}\mathit{r}\mathit{y}& \mathbf{=}& \left(Machinerycost-Accumulateddepreciation\right)\\ & \mathbf{=}& \left(\$3,500-\$2,100\right)\\ & \mathbf{=}& \mathbf{\$}\mathbf{1}\mathbf{,}\mathbf{400}\end{array}$

06

(e) Preparing journal entries

Date	Particular	Debit ($)	Credit ($)
June 23, 2017	Maintenance and Repairs Expense	6,900
	Cash		6,900

The buildings repainted at $6,900 should be debited to the maintenance and repairs expense and credited as cash.

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