Akira Ltd. purchased a building near Montreal and the land on which it was built for $850,000. The previous owner paid $1,200,000 for the land and building. A recent independent appraisal valued the land and building at a market value of $1,000,000, of which $400,000 was attributed to the land.

Akira paid $250,000 is cash and signed a note for $600,000, payable in one year. Akira also paid $50,000 in legal fees and $10,000 for unpaid property taxes. Akira spent $160,000 on renovations and alterations to the building so it would be suitable for the company’s purposes. The building is estimated to have a useful life of 20 years and a residual value of $80,000.

Akira also purchased machinery with a list price of $320,000, but the company received a 5% cash discount for prompt payment. Akira paid $22,000 for transportation of the machinery and $24,000 for installation costs. The machinery has no residual value and is expected to produce 700,000 units of product over its economic useful life. 30,000 units were produced during the first year and 48,000 units were manufactured in the second year.

In addition, Akira purchased five identical delivery trucks for a total of $300,000. The trucks have an estimated useful life of five years and a residual value of $8,000 each. Licensing and insurance fees for the five trucks amounted to $5,000, which the company paid in cash.

Akira uses the following methods to depreciate these assets:

• Building: Straight-line
• Machinery: Units of production
• Trucks: Declining balance, using a rate of 30% of the carrying amount (net book value)

REQUIRED

1. Prepare journal entries to record the purchase of the land, building, machinery, and trucks in separate asset accounts. (11 marks)
2. Prepare the journal entry to record the depreciation expense on the building for the first year of operations. (3 marks)
3. Calculate the depreciation expense on the machinery for the second year of operations. (1.5 marks)
4. Calculate the depreciation expense on the five trucks for the second year of operations. (2 marks)
5. Akira sold one of the five trucks at the beginning of the third year for $35,000 in cash. Prepare the journal entry to record the sale of the truck. (3.5 marks)
6. What are intangible assets? Give two examples. How should these assets be measured and reported in the financial statements? (3 marks)

Answer rating: 100% (QA)

Here are the required journal entries and calculations 1 Journal Entries for Asset Purchases a Land ... View the full answer