North Star Inc. a manufacturer of computer software, began operations on January 2, 2021.Below are the transactions relating to the acquisitions and disposals of capital assets for the yearended December 31, 2021 and the first 6 months of 2022. North Star Inc. uses the Net Methodfor recording transactions and reports under IFRS.

2021
Jan 2 Paid $5,000 in legal fees to form the corporation

Jan 3 Purchased Land, Building, Land Improvements and Equipment for total cash price of$1,575,000. The estimated market values of each asset were Land, $578,000; Building,$816,000; Land Improvements, $85,000 and Equipment, $221,000.


Jan 3 Paid the following additional costs with respect to the above purchase:
Landscaping costs $25,000
Land transfer tax 35,000
Equipment installation 3,000
The Building has an estimated life of 15 years, a residual value of $51,300 and will bedepreciated on a straight-line basis. The Land Improvements have an estimated servicelife of 8 years, no residual value and will be depreciated on the declining-balance basis atdouble the straight-line rate. The equipment is expected to produce 256,000 units ofproduct over its lifetime and to have a residual value of $2,500. The equipment will bedepreciated using the units-of-production method.

Feb 1 Purchased a Dell computer, in exchange for signing a non-interest bearing note payablein the amount of $10,000. The note is repayable in five equal annual instalments of$2,000 each, with the first payment to be made on February 1, 2022. The market rate ofinterest on debts of a similar type was 8%. The computer is expected to have aneconomic life of five years and a residual value of $200 and will be depreciated on thedeclining balance basis at double the straight-line rate.

Mar 1 Completed the production of new computer software. The total costs of purchasing thepatent for the software was $15,000. The company estimates that the patent will have aneconomic useful life of 5 years.
Apr 15 One of the shareholders donated a new ASUS computer to the company. The ASUScomputer has an estimated fair market value of $7,500. This computer has an estimatedresidual value of $100 and is expected to be used 10,000 hours over its economic life.The ASUS computer will be depreciated using the service-hours method.


Oct 1 North Star Inc. received a government grant to purchase a Mac computer that wouldassist the company in the developing software for a local non-profit. The cost of the Maccomputer (purchased on the same day) is $8,000, with an estimated residual value of$400, an estimated service life of 8 years and will be depreciated using straight-linemethod. North Star Inc. records grants using the deferral method.
Nov 1 Purchased on credit (terms 3/10, n/60) a used delivery van at a list price of $25,000.There was an additional charge of $650 for the installation of racks and shelves in thedelivery van, which were required to make it operationally suitable. The delivery van hasan estimated useful life of 10 years, at which time it can be sold for approximately$4,500. The delivery van will be depreciated on the declining balance basis at double thestraight-line rate. (Hint – remember to use the NET METHOD)

Dec 15 Paid for the delivery van purchased on November 1.
Dec 31 Performed all necessary year-end adjusting entries (see below for additional information)Additional information provided at the year end:
a) The equipment purchased on January 3 produced 34,000 units as of December 31, 2021.
b) The ASUS computer purchased on April 15 had been used 2,500 hours as of December 31,2021.
c) North Star Inc. has chosen to use the Revaluation Model (elimination method) for itsproperty, plant and equipment. When the financial statements for the year ended December31, 2021 were being prepared, it was discovered that the value of the land and building hadsignificantly increased in value since the date of purchase and North Star Inc. wishes torecord the effects of this increase in the 2021 financial statements. The total value of the landand building had increased to $1.8 million ($1,800,000) with 40% of the value assigned toland and 60% of the value assigned to building. (Hint - This will require additional year-endadjusting entries!)

2022
Feb 1 Paid the first instalment on the note payable issued on February 1, 2021.
Mar 31 Exchanged the ASUS computer for a photocopier. The fair market value the ASUScomputer was $6,500 and the fair market value of the photocopier was $6,000. At thetime of the exchange, the computer had been used for 300 hours.
Apr 28 North Star Inc. had to defend its patent in court (from March 1, 2021). They were notsuccessful. Litigation fees amounted to $1,500.

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Journal Entries of North Star Inc for the year 2021 Jan 2 Legal Expenses ac Dr 5000 To Ban... View the full answer