Please help. I get half way through this study question and then confused. Pleas
ID: 2483559 • Letter: P
Question
Please help. I get half way through this study question and then confused. Please explain as well and show in Excel template format. For each month May to December 2014.
Bills lawn care.
In June, Bill made several purchases to accommodate his growing business.
June 2 Bill purchased a storage location for lawn care equipment, paid $45,000 for a building on 1 acre. The land is appraised at $8,000. The building has an estimated life of 10 years with a $5,000 salvage value. Bill paid $2,000 down and financed the remaining purchase price with a 5% 5 year note.
June 4 Bill purchased a trailer to haul lawn care equipment for $2,300; estimated life is 5 years with no salvage value. Bill paid for the purchase in cash.
June 5 Bill purchased a gas powered trimmer for $1,200 and a commercial leaf-blower for $1,500. Bill estimates they will each have a two year life and no salvage value. Bill paid for both of these pieces of equipment on account.
These are in addition to the three assets Bill acquired in May:
Date Item Cost Estimated Life Salvage Value
May 2 Truck $5,000 5 years $500
5 Lawn Mower $300 2 years $0
5 Aerator $500 2 years $0
Depreciation was recorded in May for these assets using the straight-line method however Bill is considering other depreciation methods and has asked you to prepare a comparison of the straight-line method with the double declining balance (200% DDB) method before he decides.
Instructions:
1. Using the chart of accounts provided below and the Excel template , record the transactions for the new assets purchased in June, 2014. Start with Page 7 for the journal entries.
2. Prepare a monthly schedule of depreciation for each of the seven assets for 2014 using 1) straight-line and 2) 200% DDB. (Assume assets purchased before the 15th of the month will be depreciated as if owned for the entire month). Remember that you are calculating monthly depreciation, not annual and adjust your depreciation rate. Carry your depreciation rate to four decimals and round the depreciation expense to two decimals.
3. Bill has decided that equipment will be depreciated using straight-line and the building using 200% DDB. Prepare the adjusting journal entries for depreciation for the month of June, 2014. Start with Page 8 for the adjusting journal entries.
BOTH NEEDED ON ALL PURCHASES MAY 2014 TO DECEMBER 2014- S.L METHOD AND D.D.B METHOD
Explanation / Answer
1. The journal entries for the transactions for the month of June 2014 are as under: 2nd June 2014 Building Account $45,000 Cash $2,000 5% Notes payable $43,000 (Being Building purchased for storage of lawn care equipment) 4th June 2014 Trailor Account $2,300 Cash $2,300 (Being Trailor purchased for lawn care equipment) 5th June 2014 Gas powered Trimmer $ 1,200 Commercial leaf blower $ 1,500 Accounts payable $ 2,700 (Being gas powered trimmer and commercial leaf blower purchased) 2 Calculation of Depreciation on assets using straight line method: Depreciation as per SLM=(Cost-Salvage value)/Estimated no. of years Depreciation rate=Depreciation/(Cost-salvage value)×100 Date Item Cost Salvage value Estimated Useful life Depreciation Depreciation rate as per SLM Depreciation per month Rate of depreciatiion monthly 2nd May Truck $ 5,000 $ 500 5 $ 900 20.00% $ 75.00 1.6667% 5th May Lawn mower $ 300 $ - 2 $ 150 50.00% $ 12.50 4.1667% 5th May Aerator $ 500 $ - 2 $ 250 50.00% $ 20.83 4.1667% Calculation of deprecaition rate as per straight line method is as under: 2nd June Building $ 45,000 $ 5,000 10 $ 4,000 10.00% $ 333.33 0.8333% 4th June Trailor $ 2,300 $ - 5 $ 460 20.00% $ 38.33 1.6667% 5th June Trimmer $ 1,200 $ - 2 $ 600 50.00% $ 50.00 4.1667% 5th June Blower $ 1,500 $ - 2 $ 750 50.00% $ 62.50 4.1667% The calculation of depreciaton rate on assets as per double declining balance method. Rate of depreciation as per Double declining balance method=2×Rate of depreciation as per Straight line balance method Item Rate of Dep. As per SLM Rate of Dep. As per DDB (2×Rate of Dep. As per SLM) Truck 1.6667% 3.3333% Lawn mower 4.1667% 8.3333% Aerator 4.1667% 8.3333% Building 0.8333% 1.6667% Trailor 1.6667% 3.3333% Trimmer 4.1667% 8.3333% Blower 4.1667% 8.3333% The calculation of depreciation as per double declining balance method for the month of May and June is as under: Date Item Cost Rate of Dep. As per DDB per month Depreciation for the month of May Balance at the end of month of May Depreciation for the month of June Balance at the end of month of June 2nd May Truck $ 5,000 3.3333% $ 166.67 $ 4,833.33 $ 161.11 $ 4,672.22 5th May Lawn mower $ 300 8.3333% $ 25.00 $ 275.00 $ 22.92 $ 252.08 5th May Aerator $ 500 8.3333% $ 41.67 $ 458.33 $ 38.19 $ 420.14 2nd June Building $ 45,000 1.6667% $ 750.00 $ 44,250.00 4th June Trailor $ 2,300 3.3333% $ 76.67 $ 2,223.33 5th June Trimmer $ 1,200 8.3333% $ 100.00 $ 1,100.00 5th June Blower $ 1,500 8.3333% $ 125.00 $ 1,375.00 Depreciation for the month of May= (Cost×Rate of dep. As per DDB) Balance at the end of month of May=Cost-Depreciation Depreciation for the month of June= (Balance of asset at the end of May×Rate of dep. As per DDB) Depreciation of asset purchased in the month of June=(Cost×Rate of dep. As per DDB) Balance at the end of month of June=Cost-Depreciation 3. The depreciation expense of equipment as per straight line method and building as per DDB method: The depreciation expense to be recorded for the month of June is as under: Items Dep. For the month of June as per SLM Dep. For the month of June as per DDB Total Dep. For the month of June Truck $ 75 $ 75 Lawn mower $ 13 $ 13 Aerator $ 21 $ 21 Building $ 750.00 $ 750 Trailor $ 38.33 $ 38 Trimmer $ 50.00 $ 50 Blower $ 62.50 $ 63 $ 259 $ 750 $ 1,009 The journal entry for recording depreciation expense for the month of June is as under: 30th June 2014 Depreciation-Truck $ 75 Depreciation-Lawn Mower $ 13 Depreciation-Aerator $ 21 Depreciation-Building $ 750 Depreciation-Trailor $ 38 Depreciation-Trimmer $50 Depreciation-Blower $ 63 Accumulated Depreciation $ 1,009 (Being depreciation expense recorded for the month of June)