acct220 week 6 homework latest 2015

Week 6

On January 1, 20X2, The GenKota Winery purchased a new bottling system. The system has an expected life of 5 years. The system cost $325,000. Shipping, installation, and set up was an additional $35,000. At the end of the useful life, Julie Hayes, chief accountant for GenKota, expects to dispose of the bottling system for $96,000. She further anticipates total output of 660,000 bottles over the useful life.

(a) Assuming use of the straight-line depreciation method, prepare a schedule showing annual depreciation expense, accumulated depreciation, and related calculations for each year.

(b) Assuming use of the units-of-output depreciation method, prepare a schedule showing annual depreciation expense, accumulated depreciation, and related calculations for each year. Actual output, in bottles, was 100,000 (20X2), 130,000 (20X3), 150,000 (20X4), 160,000 (20X5), and 120,000 (20X6).

(c) Assuming use of the double-declining balance depreciation method, prepare a schedule showing annual depreciation expense, accumulated depreciation, and related calculations for each year.

(d) Assuming use of the straight-line method, prepare revised depreciation calculations if the useful life estimate was revised at the beginning of 20X4, to anticipate a remaining useful life of 4 additional years (in other words, a total life of 6 years). The revised useful life was accompanied by a change in estimated salvage value to $54,400.

Grant Price is conducting an audit of the property, plant, and equipment records of Wellron Corporation. Grant selected two specific assets for closer inspection. Grant has examined documentation related to each asset's original purchase and compared it to the recorded cost, physically inspected the item to determine that it is still in the possession of the company, and conducted other similar assurance procedures.

The final step in the audit of these accounts is to test the calculations of depreciation expense and accumulated depreciation. Grant has asked you to perform this final procedure for 20X8. Below is a schedule of the two assets, with the depreciation values determined by Wellron. The building was depreciated by the straight-line method, and the truck by the double-declining balance method. Determine if the indicated depreciation values are correct.

Item Cost Purchase Date Service Life Salvage Value Depreciation Expense for 20X8 Accumulated Depreciation at 12/31/X8

Building $12,00,000 July 1, 20X1 25 years $4,00,000 $32,000 $2,56,000

Truck $80,000 Oct. 1, 20X6 8 years $5,000 $13,184 $35,449

"Pierce Corporation recently hired a new manager for its struggling construction division. The manager was given responsibility for streamlining operations and restoring profitability. Selling selected assets is one option under consideration.

Begin by reviewing the following asset listing, and prepare hypothetical entries ""as if"" each asset were sold for cash at its estimated fair value. Then, determine which asset should be sold if the objective becomes to (a) have the largest immediate accounting gain, (b) have the largest immediate accounting loss, (c) result in the highest avoidance of future depreciation expense in periods subsequent to the period of asset sale, (d) produce the most immediate cash inflow, (e) have the largest total asset position, or (f) have no change in total assets."

Cost Accumulated Depreciation Fair Value

Asset A $25,00,000 $10,00,000 $30,00,000

Asset B 8,00,000 1,00,000 7,00,000

Asset C 46,00,000 5,00,000 40,00,000

Asset D 32,50,000 12,50,000 12,50,000

Tidwell Corporation's accounting staff was unsure of how to account for certain expenditures relating to its property, plant, and equipment. As a result, the company has delayed recording entries related to the following transactions. In addition, until these items are resolved, the determination of depreciation expense for the year has been delayed.

Item A The company's delivery truck, originally costing $90,000 and having a 6-year life with no salvage value, was substantially overhauled at a cost of $10,000. This expenditure occurred at the beginning of the year, when the truck was two years old. This action restored the truck to "like-new" condition, and extended the useful life by an additional three years.

Item B At mid-year, the company added a new $65,000 dust handling unit to the heating and ventilation system in its inventory warehouse. This new feature is supposed to reduce dust from the air and provide for a cleaner environment in which to store inventory. The new dust unit has a 10-year physical life, but it is anticipated that it will be scraped six and one-half years after its installation, when the primary heating system is replaced. As of the beginning of the year, the heating and ventilation system had a cost of $240,000 and accumulated depreciation of $100,000.

Item C The company entered into a 5-year contract with Reliable Maintenance Services Company. The agreement provides for Tidwell to make monthly payments of $1,500 for all routine cleaning and maintenance activities on shop equipment. Two months of services had been provided and paid as of the end of the year. As of the beginning of the year, shop equipment had a remaining net book value of $300,000, and a remaining life of three years.

Item D Tidwell entered into a joint agreement with several other companies to mutually acquire an easement on an adjoining tract of land. The easement was needed to provide right-of-way for a future rail transport line extension that will benefit all of the participating companies. Tidwell paid $10,000 for its share of the access easement. The easement is perpetual in nature.

Prepare journal entries for each of the four described expenditures. Then, calculate depreciation, as appropriate, for the expenditure and/or related assets. Assume straight-line depreciation in each case. S

Tidwell Corporation's accounting staff was unsure of how to account for certain expenditures relating to its property, plant, and equipment. As a result, the company has delayed recording entries related to the following transactions. In addition, until these items are resolved, the determination of depreciation expense for the year has been delayed.

Item A The company's delivery truck, originally costing $90,000 and having a 6-year life with no salvage value, was substantially overhauled at a cost of $10,000. This expenditure occurred at the beginning of the year, when the truck was two years old. This action restored the truck to "like-new" condition, and extended the useful life by an additional three years.

Item B At mid-year, the company added a new $65,000 dust handling unit to the heating and ventilation system in its inventory warehouse. This new feature is supposed to reduce dust from the air and provide for a cleaner environment in which to store inventory. The new dust unit has a 10-year physical life, but it is anticipated that it will be scraped six and one-half years after its installation, when the primary heating system is replaced. As of the beginning of the year, the heating and ventilation system had a cost of $240,000 and accumulated depreciation of $100,000.

Item C The company entered into a 5-year contract with Reliable Maintenance Services Company. The agreement provides for Tidwell to make monthly payments of $1,500 for all routine cleaning and maintenance activities on shop equipment. Two months of services had been provided and paid as of the end of the year. As of the beginning of the year, shop equipment had a remaining net book value of $300,000, and a remaining life of three years.

Item D Tidwell entered into a joint agreement with several other companies to mutually acquire an easement on an adjoining tract of land. The easement was needed to provide right-of-way for a future rail transport line extension that will benefit all of the participating companies. Tidwell paid $10,000 for its share of the access easement. The easement is perpetual in nature.

Prepare journal entries for each of the four described expenditures. Then, calculate depreciation, as appropriate, for the expenditure and/or related assets. Assume straight-line depreciation in each case.