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AC1220 Lab 5.1

 

Introduction

 

Jake determines that owning the building where Jake’s Computer Sales and Repair operates makes more sense than leasing the facility. On June 1, 20×1, Jake exchanges a $180,000 note payable for the following fixed assets:

 

·       Land

·       Land improvements, including fencing, paving, lighting, and signage

·       Building

 

Jake hires an independent appraiser who assigns the following market values to the assets:

 

 

Asset

Fair Market Value

Land

$23,500

Land improvements

$8,000

Building

$164,500

 

Requirement 1

Jake must allocate the $195,000 among three asset classes: land, land improvements, and building.

 

a.         Compute the total fair market value (FMV) of the lump-sum purchase of assets.

 

Asset

Fair Market Value

Land

$23,500

Land improvements

8,000

Building

164,000

Total

 

 

b.         Express land improvements and building as a percentage of the total FMV and allocate the purchase price of $180,000 to land improvements and building—the computation is completed for land.

Asset

Fair Market Value

% of Total Fair Market Value

Purchase Price

Cost of Asset

Land

$23,500

12%

$180,000

$21,600

Land improvements

 

 

180,000

 

Building

 

 

180,000

 

Total

 

 

 

 


c.         Journalize the purchase of the assets, using the allocated costs computed in Requirement 1b.

Date

Account and Explanation

Debit

Credit

6/1/x1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

To record purchase of land, land improvements, and building

 

 

 

 

 

 

 

 

Requirement 2

a.         Classify each of the following spending items as either a capital expenditure or an expense. Indicate the correct choice with an “x”:

Spending

Capital Expenditure

Expense

Routine repairs to fencing, $120 (cash)

 

 

Renovation of building, including addition to warehouse, $15,000 (on account)

 

 

Resurfaced paving, extending the remaining useful life of the paving from 3 to 5 years, $1,000 (cash)

 

 

 

b.         Journalize the expenditures described in Requirement 2a.

Date

Account and Explanation

Debit

Credit

6/1/x1

 

 

 

 

 

 

 

 

To record repairs to fencing

 

 

6/1/x1

 

 

 

 

 

 

 

 

To record renovation of building

 

 

6/1/x1

 

 

 

 

 

 

 

 

To record extraordinary repair

 

 

 

 

 

 

 

 


Requirement 3

a.         Using the straight-line depreciation method, compute the depreciation expense and the accumulated depreciation that would be recorded at December 20×1. Completing the shaded cells in the following table:

Date

Asset Cost

Depreciable Cost

Straight-line Depreciation Rate

Depreciation Expense

Accumulated Depreciation

Book Value

Jun 1, 20×1

 

 

1/5 x 6/12

 

 

 

 

b.         Using the double-declining balance method, compute the depreciation expense and the accumulated depreciation that would be recorded at December 20×1. Complete the shaded cells in the following table:

Date

Asset Cost

Depreciable Cost

Double-Declining Depreciation Rate

Depreciation Expense

Accumulated Depreciation

Book Value

Jun 1, 20×1

 

 

 

 

 

 

 

c.         Assume that a truck is expected to be driven 7,000 miles through December 31, 20×1, and that each mile driven represents one production unit. Using the units-of-productions method, compute the depreciation expense and the accumulated depreciation that would be recorded at December 20×1. Complete the shaded cells in the following table:

Date

Asset cost

Depreciation per Unit

Number of Units

Depreciation Expense

Accumulated Depreciation

Book Value

Jun 1, 20×1

 

 

 

 

 

 

 

 

 

d.         Which of the three depreciation methods applied in Requirements 2a through 2c will result in the highest depreciation expense charge at December 31, 20×1? Determine the amount.

 


e.         Journalize the depreciation charge at December 31, 20×1, using the amount from Requirement 2c.

Date

Account and Explanation

Debit

Credit

6/1/x1

 

 

 

 

 

 

 

 

To record depreciation expense

 

 

 

 

 

 

 

 

 

 

Requirement 4

a.         On June 1, 20×1, Jake acquires a license for $6,000 in cash. The license grants Jake’s Computer Sales and Repair exclusive rights to sell the A-line tablet computers for four years. Journalize the acquisition cost of the license—an intangible asset.

Date

Account and Explanation

Debit

Credit

6/1/x1

 

 

 

 

 

 

 

 

To record acquisition cost of license

 

 

 

 

 

 

 

 

 

 

b.         Journalize the amortization expense related to the license for the six months ended Dec 31, 20×1.

Date

Account and Explanation

Debit

Credit

6/1/x1

 

 

 

 

 

 

 

 

To record amortization of license

 

 

 

 

 

 

 

 

 

 

c.         At what amount will the license be reported on the balance sheet at December 31, 20×1?

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