Natalie is thinking of buying a van that will only be used for her business, Baking Time.
Question:
Natalie would spend an additional $3,000 to have the van painted with the company logo, in order to get it ready for its intended use.
In addition, she wants the back seat of the van removed so that she will have lots of room to transport her mixer inventory and baking supplies. The cost of taking out the back seat and installing shelving units is estimated at $2,000.
The annual cost of vehicle insurance will be $3,100.
Baking Time has a fiscal year end of December 31.
Determine the total cost of the van. Show your work.
2. Deandra Inc has a truck that was purchased on June 1, 2021. The truck did not need any
alterations to make it ready for use. The fiscal year end is December 31. (Use this info. for parts a. - d. below)
- the cost of the truck was $46,000
- this truck is expected to have a 5 year useful life
- the truck will have a residual value of $7,000
- the truck will have an estimated total of 250,000 kilometers in its useful life
Prepare an amortization table for 2021 and 2022 under each of the 3 amortization methods.
For a partial year (ie an asset not purchased on Jan 1), use the number of months method, not the 50% rule.
a. Amortization - Straight-line method [2 marks]
Fill in the amortization schedule for Deandra's truck using the straight line method. Show calculations.
Year | Amortization Ex. | Accumulated Amortization | Net Book Value at Year End |
2021 | |||
2022 |
b. Amortization - Single declining-balance. [2 marks]
Fill in the amortization table below using the single-declining balance method for the Deandra's truck in 2) above. Round to 2 decimal places where necessary.
Year | NBV Start of Year | Rate | Amortization Ex. | Accumulated Amortization | Net Book Value at Year End |
2021 | |||||
2022 |
c. Amortization - Units-of-activity method: [2 marks]
Fill in the amortization table below using the Units of Activity method.
Deandra uses the truck from 2) as follows: 20,000 kilometers in 2021; 50,000 kilometers in 2022.
Year | NBV Start of Year | Cost Per km (round to 3 decimal places) | Amortization Ex. | Accumulated Amortization | Net Book Value at Year End |
2021 | |||||
2022 |
d. Which method of amortization would you recommend Deandra use? Explain your choice. [2 marks]
3.Titry Co. has a piece of equipment it purchased on Oct 1, 2021. The total cost was $32,000. It has a scrap value of $4,000 and an estimated life of 8 years. Titry uses the straight line method of amortization. Fiscal year end is Dec 31.
On Sept 30, 2024, Titry decided to sell the equipment. They get $12,000 cash for the equipment.
Record the journal entry needed to record the equipment's disposal on Sept 30, 2024. (2 marks)
Date | Particulars | PR | Debit | Credit |
4.Wanterworks Inc has a truck that it purchased on October 1, 2021 for $44,500. It has a scrap value of $5,000 and an estimated life of 5 years. Wanterworks uses the double declining depreciation method. The company retires the machine on Feb. 1, 2023. The company uses the 50% rule for the partial year in 2021, for amortization. Round to 2 decimal places where necessary.
Record the journal entry for the delivery truck's retirement on Feb 1, 2023. (2 marks)
Date | Particulars | PR | Debit | Credit |
Baking Time bought a piece of equipment on Nov 1, 2020 for $40,000. It had an estimated residual value of $8,000 and estimated useful life of 8 years. The straight line method of amortization is used.
5.On March 31, 2022, Baking Time trades in this old equipment for a new piece of equipment, whose price is $82,000. The seller gives us a trade-in allowance of $5,000 on the exchange. The fair market value of the old equipment, when exchanged, is $22,000.
Record the journal entry for the exchange of this equipment below. Assume December 31 year end. Round to 2 decimal places.
Date | Particulars | PR | Debit | Credit |
6.Greally purchased a mine on May 31, 2007, for $3.2 million cash. On the same day, modernization of the mine was completed at a cash cost of $210,000, to make it usable.
It is estimated that this mine will yield 700,000 tonnes of ore in its lifetime.
The estimated residual value of the mine is $300,000.
Greally expects it will extract all the ore, and then close and sell the mine site in four years.
- What is the journal entry to record the purchase of the mine on May 31, 2007? (2 marks)
Date | Particulars | PR | Debit | Credit |
- On December 31, 2007, Greally extracted 150,000 tonnes of ore from the mine. Record the journal entry for the extraction on Dec 31, 2007. (2 marks)
Date | Particulars | PR | Debit | Credit |
On March 31, 2017, Delia Industries purchased a new plant for $1,500,000 for cash. Before completing the purchase, Delia had obtained appraisals to determine the relative value of the different assets purchased.
The valuation indicated that the fair market value of the land would be $275,000, the building would be $1,100,000, the manufacturing equipment would be $192, 500 and the office and computer equipment would be $82,500.
Record the purchase on March 31, 2017. Round to the nearest dollar. (2 marks)
Date | Particulars | PR | Debit | Credit |
8. Intangibles (2 marks each)
2023 Jan 1 Purchased a $450,000 patent. It has an estimated life of 5 years and a legal life of 20 years
Jan 1 Incurred $20,000 in legal fees to successfully defend the patent. Paid cash
Dec 31 Record the necessary amortization for this patent.
Date | Particulars | PR | Debit | Credit |
9. The Noodle House Restaurant does a brisk business. Journalize the following three transactions on May 16, 2023.
The following service fees apply: 2.5% for MasterCard, $0.15 for debit card.
a) A lunch bill for $64.00 was paid with a debit card (2 marks)
Date | Particulars | PR | Debit | Credit |
. b) A lunch bill for $29.00 was paid with a MasterCard. (2 marks)
Date | Particulars | PR | Debit | Credit |
10. Wilkin Jewellers is a jewelry wholesaler. They mostly sell to retailers.
Bob's Fine Jewellery has an outstanding account with Wilkin Jewellers for $8,800 that is several months past due.
On April 1, Wilkin Jewellers accepted a promissory note for the total amount owing from Bob's, with 5% annual interest. The term of the note is 3 months ending June 30, 2021.
Record the following independent journal entries:
a) The journal entry to record the acceptance of the note by Wilkin Jewellers. (2 marks)
Date | Particulars | PR | Debit | Credit |
b) The journal entry to record the receipt of payment of the note, plus interest on June 30, 2021. (2 marks)
Date | Particulars | PR | Debit | Credit |
11. Suri Products Suri Products has 350 accounts receivable accounts. Terms of sale for Suri's A/R are n/30. On June 30, an aging schedule was prepared by Suri's A/R clerk. The results are summarized below.
The following % for each of the past due accounts categories is listed below.
Not yet due 1% 1-30 days 4% 31-60 days 10% 61-90 days 30% 90+ days 50%
- Calculate the total estimated uncollectible, based on this aging schedule. (2 marks)
- Record the journal entry to adjust for the uncollectible accounts on June 30. (2 marks)
NOTE: Prior to making this adjusting entry, the Allowance for Doubtful Accounts has a credit balance of $13,800.
Date | Particulars | PR | Debit | Credit |
Accounting Principles Volume 2
ISBN: 9781119786634
9th Canadian Edition
Authors: Jerry J. Weygandt, Donald E. Kieso, Paul D. Kimmel, Barbara Trenholm, Valerie Warren, Lori Novak