Chapter Ten Maria Fonseca

Chapter Ten Maria Fonseca

Challenge Exercise 10-1

Expands on: E10-2

LO: 1

Fluffier Company incurred the following costs.

1. Sales tax on factory machinery purchased, $7,000.

2. Painting of and lettering on truck immediately upon purchase, $800.

3. Installation and testing of factory machinery, $2,500.

4. Real estate broker’s commission on land purchased $4,500.

5. Insurance premium paid for first year’s insurance on new truck $930.

6. Cost of landscaping on property purchased $9,200.

7. Cost of paving parking lot for new building,$18,700.

8. Cost of clearing, draining, and filling land,$14,400.

9. Architect’s fees on self-constructed building,$11,000.

Instructions:

a) Indicate to which account Trudy would debit each of the costs.

b) Explain why item 1 is not debited to an expense account.

c) Explain why items 7 and 8 are debited to different accounts.

Fluffier company

Debit credit

$2,500 $18,700

$7,000 $14,400

$800 $11,000

$4,500 totalamount

Challenge Exercise 10-2

Expands on: E10-11

LO: 3

Grace Company owns equipment that cost $70,000 when purchased on January 1, 2017. It has been depreciated using the straight-line method based on estimated salvage value of $7,000 and an estimated useful life of 5 years.

Instructions:

Prepare Grace Company’s journal entries to record the sale of the equipment in these four independent situations. Update depreciation on assets disposed of at time of sale.

(a) Sold for $40,000 on January 1, 2017.

(b) Sold for $40,000 on April 1, 2017.

(d) Sold for $15,000 on September 1, 2017.

(e) Repeat (a), assuming Grace Uses double-declining balance depreciation.

(e) Repeat (c), assuming Grace uses double-declining balance depreciation.

Grace Company Journal

Date

January 1, 2017 Account /explanations Debit credit

Supplies $ 70,000 $70,000 $70,000

Sold $ 40,000

April 1, 1 2017 sold $40, 00 0 $40,000

January 1, 2017 sold $15,000

September 1, 2017 sold $ 15,000