Question

Journal Entries for Plant Assets During the first few days of the year, Coast Company entered into the following transactions:
1. Purchased a parcel of land with a building on it for $900,000 cash. The building, which will be used in operations, has an estimated useful life of 25 years and a salvage value of $60,000. The assessed valuations for property tax purposes show the land at $80,000 and the building at $720,000.
2. Paid $31, 200 for the construction of an asphalt parking lot for customers. The parking lot is expected to last 12 years and has no salvage value.
3. Paid $25,000 for the construction of a new entrance to the building.
4. Purchased store equipment, paying the invoice price (including seven percent sales tax) of $78, 760 in cash. The estimated useful life of the equipment is eight years, and the salvage value is $6,000.
5. Paid $240 freight on the new equipment.
6. Paid $1, 650 to repair damages to floor caused when the store equipment was accidentally dropped as it was moved into place.
7. Paid $55 for an umbrella holder to place inside front door (customers may place wet umbrellas in the holder). The holder is expected to last 20 years.
Required
a. Prepare journal entries to record these transactions.
b. Prepare the December 31 journal entries to record depreciation expense for the year. Double-declining balance depreciation is used for the equipment, and straight-line depreciation is used for the building and parking lot.

Answer 1

Answer:

a. Journal Entries:

1. Debit Land $90,000

Debit Building $810,000

Credit Cash $900,000

To record the purchase of land and building.

2. Debit Parking lot $31,200

Credit Cash $31,200

To record the construction of parking lot.

3. Debit Building $25,000

Credit Cash $25,000

To record the construction of a new entrance to the building.

4. Debit Store Equipment $78,760

Credit Cash $78,760

To record the purchase of equipment.

5. Debit Store Equipment $240

Credit Cash $240

To record the freight on the new equipment.

6. Debit Building Repairs Expense $1,650

Credit Cash $1,650

To record repair damages to floor.

7. Debit Miscellaneous expense $55

Credit Cash $55

To record the expense for an umbrella holder

b) Journal Entries:

Debit Depreciation Expense- Building $31,000

Credit Accumulated Depreciation- Building $31,000

To record depreciation expense for the year.

Debit Depreciation Expense - Parking Lot $2,600

Credit Accumulated Depreciation - Parking Lot $2,600

To record depreciation expense for the year.

Debit Depreciation expense - Store Equipment $19,750

Credit Accumulated Depreciation - Store Equipment $19,750

To record depreciation expense for the year.

Explanation:

a) Data:

1. Land $90,000 ($80,000/$800,000 * $900,000)

Building $810,000 ($720,000/$800,000 * $900,000) Cash $900,000

Salvage value = $60,000, useful life = 25 years

Depreciation per year = $31,000 ($810,000 + 25,000- $60,000)/25

2. Parking lot $31,200 Cash $31,200

Depreciation per year = $2,600 ($31,200/12)

3. Building $25,000 Cash $25,000

4. Store Equipment $78,760 Cash $78,760

Salvage value = $6,000 with useful life of 8 years

5. Store Equipment $240 Cash $240

Depreciation Expense = $19,750 (25% of $79,000)

6. Building Repairs Expense $1,650 Cash $1,650

7. Miscellaneous Expense $55 Cash $55