Question

Precision Construction entered into the following transactions during a recent year.January 2 Purchased a bulldozer for $250,000 by paying $20,000 cash and signing a $230,000 note due in five years.January 3 Replaced the steel tracks on the bulldozer at a cost of $20,000, purchased on account.January 30 Wrote a check for the amount owed on account for the work completed onJanuary 3.February 1 Replaced the seat on the bulldozer and wrote a check for the full $800 cost.March 1 Paid $3,600 cash for the licensing rights to use computer software for a two-year period.1-b. Prepare the journal entries for each of the above transactions. (If no entry is required for a transaction/event, select "No Journal Entry Required" in the first account field.)2. For the tangible and intangible assets acquired in the preceding transactions, determine the amount of depreciation and amortization that Precision Construction should report for the quarter ended March 31. The equipment is depreciated using the double-declining-balance method with a useful life of five years and $40,000 residual value. (Do not round intermediate calculations.)3. Prepare a journal entry to record the depreciation and amortization calculated in requirement 2. (If no entry is required for atransaction/event, select "No Journal Entry Required" in the first account field.)

Answer 1

Answer and Explanation:

Precision Construction

Asset = Liabilities + Shareholder Equity

ASSET

Jan2 Cash ($20,000)

Equipment $250,000

January 3 Equipment $20,000

January 30 Cash ($20,000)

February 1 Cash ($800)

March 1 Cash ($3,600)

Licensing Right $3,600

LIABILITIES

January 2 Note payable(Long term) $230,000

January 3 Account payable $20,000

January 30 Account payable ($20,000)

STOCKHOLDERS EQUITY

Repairs$ maintenance expenses (800)

1.

Date Account Titles

Jan-02 Dr Bulldozer $250,000

Cr Cash $ 20,000

Cr Note Payable $ 230,000

(Purchased bulldozer)

Jan-03 Dr Bulldozer $20,000

Cr Accounts Payable $20,000

(Replaced tracks on bulldozer)

Jan-30 Dr Accounts Payable $20,000

Cr Cash 20,000

(Paid cash)

Feb-01

Dr Repair and Maintenance Expense $800

Cr Cash $ 800

(Repaired seat of bulldozer)

Mar-01 Dr Computer Software $ 3,600

Cr Cash 3,600

(Purchase computer software)

2.

Double Declining Depreciation = Beginning Book Value x 2 times straight line rate

Straight line rate = 1/5 x 100 = 20%

Depreciation (3 months) = $270000 x 40% x 3/12 = $27000

Amortization (1 month) = $3600 / 2 x 1 / 12 = $150

3.

Date Account Titles Dr Cr

Mar-31 Dr Depreciation Expense $ 27,000

Cr Accumulated Depreciation $ 27,000

(Depreciation recorded)

Mar-31 Dr Amortization Expense $ 150

Cr Computer Software $ 150

(Software amortized)