Assignment (1) On 1/1/04 Jack of All Trades, Inc. bought the following assets fo
ID: 2549682 • Letter: A
Question
Assignment (1) On 1/1/04 Jack of All Trades, Inc. bought the following assets for a combined purchase price of $75,000 cash: Market Value (1/1/04) $60,000 $30,000 Useful life 5,000 barrels 5 years Asset $10,000 Oil Well Furniture Show the journal entry for Jack of All Trades' asset purchase on 1/1/04 How much depletion expense should the company record on 12/31/04 if 1,200 barrels of $4,000 a. b. oil were produced during 2004? Jack of All Trades uses the double-declining balance method for the furniture. Show the c. depreciation schedule. On 1/1/06, Jack of All Trades sells the furniture for $30,000. Show the journal entry for d. the sale.Explanation / Answer
a.
b. Depletion expense on 12/31/04: $9600
Depletion rate per barrel = ($50000 - $10000)/5000 = $8
Depletion expense = $8 x 1200 barrels = $9600
c. Straight-line Depreciation Rate = 100%/5 years = 20%
Double-declining balance depreciation rate = 20% x 200% = 40%
Depreciation Schedule: Double-declining method:
d.
Date General Journal Debit Credit 1/1/04 Oil Well (75000 x 60000/90000) 50000 Furniture (75000 x 30000/90000) 25000 Cash 75000 (To record asset purchase)