On 2 January 2019, Powerhouse Ltd purchased, by exchanging $300 000 cash and a $180 000, 12%, 18‐month finance company loan, assets with the following independently determined appraised values.

The estimated useful life of the building is 30 years and its residual value is $20 000.
The $100 000 machinery and equipment amount consists of three machines independently valued at $30 000 each and some office equipment valued at $10 000. The estimated useful lives and residual values for these assets are shown below.

Powerhouse Ltd uses the straight‐line depreciation method. Ignore GST.
Required

(a) Prepare journal entries (in general journal form) to record the following:

i. the purchase of the assets 

ii. the accrual of interest expense on the loan on 31 December 2019 

iii. depreciation expense for the year 2019 iv. the payment of the loan on 2 July 2020.

(b) Show how the assets would be reported on the 31 December 2019 balance sheet.

Transcribed Image Text:

Building Land Machinery and equipment Appraised value $320000 80000 100000 $ 500 000