NO ITS NOT !!Please if you can exaplain step by STEP and the t account that woul
ID: 2526000 • Letter: N
Question
NO ITS NOT !!Please if you can exaplain step by STEP and the t account that would be helpful
Masco industries , a new york corporation , purchased a machinery from Canton , Ohio on April 1, 2013 . The purchase price was $950,000. The machinery had an estimated usefullife of 10 years . The estimated residual value is $50,000 . Masco uses straight line depreciation method .
The following cost were incured
Shipping cost 20,000 Insurance in transit 4,000 instalation cost 10,000 NYS insepction fee 1,000
the machinery was deemed to be impared on december 31 2017 . The loss on impairement was 15,000,000.
Masco sold the equipment for 40,000,000 on july 1 2018 .
REQUIREMENT : CREATE A COMPLETE SET OF ACCOUNTING RECORDS INCLUDING JOURNAL ENTIES AND THE GENERAL LEDGER ACCOUNTS .
Explanation / Answer
The orginal purchase price of an Asset should include all costs that are required to bring the asset to a working condition. The Shipping Cost, Insurance in transit, Installation Cost and Inspection fee 1000 are assumed to be necessary to bring the asset to a working condition and hence added to the purchase cost
Total Purchase Cost = 950000 + 20000 + 4000 + 10000 + 1000 = 985,000
On purchase of the asset, the following journal should be passed:
Considering a residual value of 50,000 and useful life of 10 years, the Annual depreciation would be :
(Purchase Cost - Salvage Value)/ Useful Life = (985000 - 50000)/10 = $93,500
Depreciation for 9 months is 9/12 X 93,500 = 70,125.
On 31 Dec 2013 we would pass the depreciation entry for the 9 month period:
At the end of each of the years, 31 Dec 2014, 31 Dec 2015, 31 Dec 2016 and 31 Dec 2017, we would record the following depreciation entries:
The impairment loss given in the question is assumed to be $40,000(Since $40,000,0000 would not be possible)
on 31 December 2017, we would further reduce the value of the machinery by 40,000 by impairing it:
The adjusted annual depreciation on the asset post impairment would be:
(Purchase Value - Depreciation expenses so far - Impairment Loss - Salvage Value)/ Remaining useful life = 450,875/5.25 years = $85,881
Depreciation for 6 Months from 1 Jan 2018 to 1 Jul 2018 would be $42,940. The Following depreciation entry would be passed at the time of sale:
The Net book value at the time of sale is 450,875 - 42,940 = 407,935
(The Sale price is assumed to be 400,000 as 40,000,000 would not make senes.)
The sale would be recored as follows:
The T-Account for Machinery Account over the years would look as follows:
Debit Credit 01-Apr-13 Machinery 9,85,000 Cash 9,85,000