On January 2, 2010, Seamus International Company purchased a new corporate airplane. The following costs are related
Question:
On January 2, 2010, Seamus International Company purchased a new corporate airplane. The following costs are related to the purchase:
Airplane, base price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,200,000
Cash discount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18,000
Sales tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48,000
Delivery charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,000
Required:
1. Prepare the journal entry to record the payment of these items on January 2, 2010.
2. Ignore your answer to part (1) and assume that the airplane cost $1,100,000 and has an expected useful life of 10 years or 1,600 hours. The estimated salvage value is $120,000. Using units-of-production depreciation and assuming that 160 hours are fl own in 2011, calculate the amount of depreciation expense to be recorded for the second year.
3. Ignore the information in parts (1) and (2) and assume that the airplane costs $1,100,000, that its expected useful life is 10 years, and that its estimated salvage value is $150,000. The company now uses the straight-line depreciation method. On January 1, 2013, the following balances are in the related accounts:
Airplane . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,100,000
Accumulated Depreciation, Airplane . . .. . . . . . . . . . . . . . . . . . . . . . . 285,000
Prepare the necessary journal entries to record the sale of this airplane on July 1, 2013, for $800,000.
Salvage value is the estimated book value of an asset after depreciation is complete, based on what a company expects to receive in exchange for the asset at the end of its useful life. As such, an asset’s estimated salvage value is an important...
Step by Step Answer:
Accounting concepts and applications
ISBN: 978-0538745482
11th Edition
Authors: Albrecht Stice, Stice Swain