I need help in accounting with depreciation and disposals. I need someone to help me break it downBrown Company paid cash to purchase the assets of Coffee Company on January 1,
2019. Information is as follows:
$2,990,000
Total cash paid
Assets acquired:
$600,000
Land
$600,000
Building
$500,000
Machinery
$600,000
Patents
The building is depreciated using the double-declining balance method. Other
information is:
$60,000
Salvage value
30
Estimated useful life in years
The machinery is depreciated using the units-of-production method. Other information
is:
10%
Salvage value, percentage of cost
400,000
Estimated total production output in units
Actual production in units was as follows:
40,000
2019
80,000
2020
120,000
2021
The patents are amortized on a straight-line basis. They have no salvage value.
20
Estimated useful life of patents in years
On December 31, 2020, the value of the patents was
estimated to be
$900,000
Where applicable, the company uses the ½ year rule to calculate depreciation and
amortization expense in the years of acquisition and disposal. Its fiscal year-end is
December 31.
The machinery was traded on December 2, 2021 for new machinery. Other information
is:
$240,000
Fair value of old machinery
$336,000
Trade-in allowance
$504,000
List price for new machinery
20
Estimated useful life of new machinery in years
$15,120
Estimated salvage value of new machinery
The new machinery if depreciated using the stright-line method and ½ year rule.
On August 14, 2023, an addition was made. This amount was material. Other relevant
information is as follows:
$100,000
Amount of addition, paid in cash
Number of years of useful life from 2023 (original
20
machinery and addition):
10%
Salvage value, percentage of addition
Required: Prepare journal entries to record:
1 The purchase of the assets of Coffee.
2 Depreciation and amortization expense on the purchased assets for 2019.
3 The decline (if any) in value of the patents at December 31, 2020.
4 The trade-in of the old machinery and purchase of the new machinery.
5 Depreciation on the new machinery for 2021.
6 Cost of the addition to the machinery on August 14, 2023.
7 Depreciation on the new machinery for 2023.
Brown Company
GENERAL JOURNAL
Dec.
2019
Description
PR
Debit
Credit
Brown Company
GENERAL JOURNAL
Dec.
2019
Description
F
Debit
Credit
Brown Company
GENERAL JOURNAL
Dec.
2019
Description
F
Debit
Credit
Copyright © 2018 David Annand
Published by David Annand
Box 308, Rochester AB T0G 1Z0
ISBN: 978-0-9953266-6-8
Library and Archives Canada Cataloguing in Publication
Annand, David, 1954–
This case is licensed under a Creative Commons License, Attribution–Noncommercial–Share Alike 4.0 USA see www.creativecommons.org. This material may
be reproduced for non-commercial purposes and changes may be used by others
provided that credit is given to the author.
To obtain permission for uses beyond those outlined in the Creative Commons
license, such as personalized assignments for students, please contact David Annand
at [email protected].
Latest version available at https://open.bccampus.ca/find-open-textbooks/
Please forward suggested changes to [email protected].
First US Edition
July 31, 2018
Before you begin, print out all the pages in this workbook.
The unadjusted trial balance of Morgan Manufacturing Corp. at December 31, 2019 is
shown on the “Trial Bal” page (see tab below). Refer also to the additional year-end
information for the company shown on the “Adjusting Entries” page (see tab below).
Required:
1 Prepare year-end adjusting entries. General ledger account numbers are not
necessary. Show your calculations below each adjusting entry.
2 Post the adjusting entries to the trial balance and prepare an adjusted trial
balance.
3 Using the amounts from the adjusted trial balance, complete the financial
statements for the year ended December 31, 2019.
Morgan Manufacturing Corp.
Adjusting Entries
For the Year Ended December 31, 2019
The following additional information is available at the corporation’s year-end. GST of
5% only applies when indicated.
a. A sale on account has not been recorded in the amount of:
Applicable sales tax is:
b. Warranty expense for the year as a percentage of sales should be:
c. Unpaid gross salaries at year-end amount to:
Deductions from unpaid salaries are as follows:
Employee
Portion
12%
Employee income taxes
4%
FICA Social Security taxes*
2%
FICA Medicare taxes
4%
Company health insurance
* these are not the actual required percentages
d. The estimated year-end audit fees are:
$5,000
8%
2%
$10,000
Company
Portion
0%
4%
2%
4%
$90,000
e. Rent revenue consists of 13 equal monthly payments, including one
paid in advance for January 2020.
f. A trade account payable was converted to a note payable during the
year. No entry has been made to record this. The note payable is due
at the end of 2020.
The amount of the note payable is:
The annual interest rate on the note payable is:
The note payable was created at the end of this month:
(January = 1; December = 12)
$40,000
3%
9
g. A lawsuit was commenced against the company in 2019. Damages
claimed are:
Lawyers for the company consider the likelihood of success to be:
h. The interest rate on the mortgage is:
Annual payments (blended principal and interest) are made on Dec.
31 and total:
The 2019 payment has been recorded as Interest on Long-term Debt
expense.
i. The corporate income tax rate as a percentage of income before
income taxes is:
Corporate income tax installments during the year have been
recorded as Income Tax expense in the records. Assume any 2019
loss before income taxes will result in the refund of income taxes at
the current year’s income tax rate.
$30,000
Possible
8%
$163,200
10%
Morgan Manufacturing Corp.
GENERAL JOURNAL
Dec.
2019
Adjusting entries
Debit
Credit
Morgan Manufacturing Corp.
GENERAL JOURNAL
Dec.
2019
Adjusting entries
Debit
Credit
Morgan Manufacturing Corp.
GENERAL JOURNAL
Dec.
2019
Adjusting entries
Debit
Credit
Morgan Manufacturing Corp.
GENERAL JOURNAL
Dec.
2019
Adjusting entries
Debit
Credit
Morgan Manufacturing Corp.
GENERAL JOURNAL
Dec.
2019
Adjusting entries
Debit
Credit
Morgan Manufacturing Corp.
GENERAL JOURNAL
Dec.
2019
Adjusting entries
Debit
Credit
Account
#REF!
Cash in bank
Accounts receivable
Parts inventory
Corp. income tax receivable
Land
Building
Accumulated dep’n – bldg.
Trade accounts payable
Interest payable
Estimated current liabilities
Estimated warranty liability
Salaries payable
Employee inc. taxes pay.
FICA Soc. Sec. pay.
Trial Balance At December 31, 2019
Unadjusted TB
Adjustments
Debit
Credit
Debit
Credit
Adj. #
74,000
760,000
210,000
10,000,000
7,900,000
1,580,000
140,000
136,000
FICA Medicare payable
Co. health insurance payable
Corp. income tax payable
Sales tax payable
Note payable
Unearned rent revenue
Mortgage payable
Common stock, $1 per sh.
Retained earnings
1,000
1,632,000
9,000,000
2,963,800
Adj. #
Debit
Adjusted TB
Credit
Rent revenue
Sales, net
Cost of goods sold
Bad debts expense
Co. health ins. expense
Delivery expense
Dep’n. expense – building
FICA Soc. Sec. exp.
FICA Medicare exp.
Interest and bank charges
Interest on long-term debt
Lawsuit damages expense
Office supplies expense
Professional fees
Salaries expense
Warranty expense
Corp. income tax exp.
520,000
13,600,000
8,704,000
3,000
18,400
300,000
1,000
18,400
9,200
50,000
163,200
0
99,000
40,000
460,000
1,000
489,600
29,436,800
29,436,800
Morgan Manufacturing Corp.
Income Statement
For the Year Ended December 31, 2019
2019
Sales, net
Less: Cost of goods sold
Gross profit
Operating expenses
Selling
Salaries and benefits
Delivery
Office supplies
Warranty
Total selling
General and administrative
Bad debts
Depreciation
Lawsuit damages
Professional fees
Total general and adminstrative
Total operating expenses
Income from operations
Other income
Rent revenue
Income before interest and income taxes
Interest expense
Income before income taxes
Income taxes
Net income
Balance at Jan. 1
Net income
Balance at Dec. 31
Morgan Manufacturing Corp.
Statement of Changes in Equity
For the Year Ended December 31, 2019
2019
Common
Retained
Total equity
stock
earnings
$9,000,000
$2,963,800
$11,963,800
$9,000,000
2018
$12,756,800
9,017,344
3,739,456
532,510
282,510
99,000
247,520
1,161,030
2,790
940
143,000
146,730
1,307,760
2,431,696
499,200
2,930,896
177,243
2,753,653
275,365
$2,478,288
2018
Total equity
$9,485,512
2,478,288
$11,963,800
Morgan Manufacturing Corp.
Balance Sheet
At December 31, 2019
Assets
Current
Cash
Accounts receivable, net
Corporate income taxes receivable
Inventories
Non-current
Land
Building, net
2019
2018
$41,970
640,000
168,012
849,982
23,166,245
6,321,000
29,487,245
$30,337,227
Liabilities
Current
Trade accounts payable
Estimated current liabilities
Estimated warranty liabilities
Note payable
Interest payable
Salaries and benefits payable
Sales tax payable
Unearned rent
Current portion of mortgage payable
Corporate income taxes payable
$108,150
84,600
126,900
0
297
10,340
1,540
41,600
180,000
553,427
Non-current
Mortgage payable
Less: Current portion
18,000,000
(180,000)
17,820,000
18,373,427
Total liabilities
Stockholders’ Equity
Common stock
Retained earnings
Total liabilities and S/H equity
9,000,000
2,963,800
11,963,800
$30,337,227
Copyright © 2018 David Annand
Published by David Annand
Box 308, Rochester AB T0G 1Z0
ISBN: 978-0-9953266-6-8
Library and Archives Canada Cataloguing in Publication
Annand, David, 1954–
This case is licensed under a Creative Commons License, Attribution–Noncommercial–Share Alike 4.0 USA see www.creativecommons.org. This material may
be reproduced for non-commercial purposes and changes may be used by others
provided that credit is given to the author.
To obtain permission for uses beyond those outlined in the Creative Commons
license, such as personalized assignments for students, please contact David Annand
at [email protected].
Latest version available at https://open.bccampus.ca/find-open-textbooks/
Please forward suggested changes to [email protected].
First Edition
July 31, 2018
Purchase answer to see full
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