Mi also purchased new equipment on November 1,2017. The equipment cost $125,000.
ID: 2558174 • Letter: M
Question
Mi also purchased new equipment on November 1,2017. The equipment cost $125,000. In addition MI had to pay $5,000 in shipping fees to have the equipment delivered and $8,000 to have a cement pad poured for the installation of equipment. Fred believes there was $15,000 of labour downtime:as a result of the installation. The equipment has an expected salvage value of $8,000 and it is standard MI practice to depreciate equipment using a declining balance rate of 20% Fred has asked you to set up the equipment on the books at the total cost of $153,000 and record the depreciation for the year end. » Fred came to you and wanted to know why the land across the street that was purchased in 2017 could not be recorded at the estimated fair value of $800,000. "Since we purchased that land, prices have skyrocketed in the area. Just yesterday, I had a call from a casino developer asking if they could buy it for $780,000. I think we could easily get $800,000 for it, but Sam doesn't want to sell it. I think we should record it at what we could get for it. What do you think?" » During 2017, Fred worked hard to attract new business. In November, he managed to sign a con tract with Simcoe Toys (ST) that would see MI selling 500,000 kg of recycled plastic to ST over the next tw that ST paid $200,000 in advance of the start of production. The amount was received December1 2017. As of December 31, 2017, MI had produced and delivered 50,000 kg of recycled plastic to SI You noted to Fred that it appears that the $200,000 deposit was recorded as revenue. Fred has aske you if there is anything wrong with that entry. If there is, he would like to know why and for you t make any correcting entry that you feel is appropriate. » o years at a price of $2 per kilogram. Fred is quite excited about the contract and the fact MI sells to many customers on credit. MI employs a credit manager who reviews a client's financia history prior to allowing them to buy on credit. It is MI's policy to use the allowance for doubtfula counts method based upon the aging of receivables. The balance is adjusted yearly after taking int account any adjustments for customers accounts written off. » A snapshot of MI's current accounts receivable balance at year end shows that it has a balance « $529,200 with an allowance for doubtful accounts debit balance of $6,000. (Note that this is pri to any adjusting journal entries that you would make.) A more detailed breakdown of the accoun receivable balance shows the following amounts aged: 0 to 30 days: 31 to 60 days: 61 to 90 days: Greater than 90 days: $280,000 $155,000 75,600 18,600Explanation / Answer
1. 1/11/2017 Equipment A/c dr 153000
to Bank 153000
31/12/2017 Depreciation A/c dr 5100*
to Equipment A/c 5100
*Calculation of Depreciation
Dep = Cost* rate of dep * month/12 = 153000*20%*2/12 = 5100
Note: Salvage value to be ignored in case of declining balancing rate method
2. Yes Land will record at Cost Price
Land A/c Dr 780000
to Bank 780000
Note: When we will sale then difference between cost & selling price to be recoerded at gain on sale of Land
3. Yes There is wrong entry done by accountant of MI. Advance received of $200000 to be treated as advance at the time of receipt and after deliverd the goods then value of goods to be adjusted with advance.
Correction entry
Revenue A/c dr 200000
to Simcoe Toys 200000
Sale entry
31/12/2017 Simcoe Toys A/c Dr 100000 [ 50000*2]
to Revenue 100000