# NW Tool Supply Company purchased land and a building on April 1, 2022, for \$385,000. The company paid \$115,000 in cash and signed a 5% note payable for the balance. At that time, it was estimated that the land was

NW Tool Supply Company purchased land and a building on April 1, 2022, for \$385,000. The company paid \$115,000 in cash and signed a 5% note payable for the balance. At that time, it was estimated that the land was worth \$150,000 and the building, \$235,000. The building was estimated to have a 25-year useful life with a \$35,000 residual value. The company has a December 31 year end, prepares adjusting entries annually, and uses the straight-line method for buildings; depreciation is calculated to the nearest month. The following are related transactions and adjustments during the next three years.

2022

Dec. 31 Recorded annual depreciation.

31 Paid the interest owing on the note payable.

2023

Feb. 17 Paid \$225 to have the furnace cleaned and serviced.

Dec. 31 Recorded annual depreciation.

31 Paid the interest owing on the note payable.

31 The land and building were tested for impairment. The land had a recoverable amount of \$120,000 and the building, \$240,000.

2024

Jan. 31 Sold the land and building for \$320,000 cash: \$110,000 for the land and \$210,000 for the building.

Feb. 1 Paid the note payable and interest owing.

Instructions

a. Record the above transactions and adjustments, including the acquisition on April 1, 2022. (Round the depreciation calculation to the nearest dollar.)

b. What factors may have been responsible for the impairment?

c. Assume instead that the company sold the land and building on October 31, 2024, for \$400,000 cash: \$160,000 for the land and \$240,000 for the building. Prepare the journal entries to record the sale.

How might management determine the recoverable amount of the land and building at each year end? Would the company need to test the assets for impairment every year?

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Related Book For

## 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

Question Details
Chapter # 1- Accounting in Action
Section: Problem Set A
Problem: 7
Posted Date: January 23, 2023 08:41:11