Simulation _ CPA2.01

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University of Texas, Rio Grande Valley *

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6321

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Accounting

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May 6, 2024

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11/2/23, 12:28 PM Simulation | CPA https://cpa.becker.com/module/F-03-05/V4.3/sim/session 1/2 Printing Co. records the following journal entry related to the purchase of machinery on April 1, Year 1: DR Property, plant, and equipment $38,000 CR Accounts payable $38,000 Printing Co. capitalizes the cost of the machine as its cost exceeds $500. All costs related to the acquisition of the machinery are included in this journal entry. This includes the full invoice price ($36,000) as well as tax ($1,800) and shipping ($200). According to Printing Co.'s ±xed asset capitalization and depreciation policy, the company will depreciate the binding machine over a ±ve-year useful life, with a half-year convention. Technically, depreciation begins when the company places the machine in service, but the in-service date is irrelevant because the company uses the half-year convention. Using the half-year convention, Printing Co. records one-half year's depreciation expense in Year 1 and one-half year's depreciation expense in the year of disposal. Annual depreciation expense totals $7,600 ($38,000 / 5 years). Note that there is no salvage value to consider in the calculation. The following journal entry records depreciation expense: DR Depreciation expense $3,800 CR Accumulated depreciation $3,800 The company records a full year's depreciation expense for Year 2 with the following journal entry: DR Depreciation expense $7,600 CR Accumulated depreciation $7,600 On March 30, Year 3, Printing Co. hired technicians for basic maintenance on the binding machine. Because these are ordinary expenses, Printing Co. records these costs as repairs and maintenance expense with the following journal entry: DR Repairs and maintenance expense $4,000 CR Accounts payable $4,000 The company records a full year's depreciation expense for Year 3 with the following journal entry: DR Depreciation expense $7,600 CR Accumulated depreciation $7,600 Printing Co. disposes of the binding machine on June 30, Year 4. Prior to disposal, the company records depreciation expense under the half-year convention as follows : DR Depreciation expense $3,800 CR Accumulated depreciation $3,800

11/2/23, 12:28 PM Simulation | CPA https://cpa.becker.com/module/F-03-05/V4.3/sim/session 2/2 At the time of disposal, accumulated depreciation totals $22,800 ($3,800 + $7,600 + $7,600 + $3,800). The company removes both the historical cost of the machine and the accumulated depreciation in the journal entry. Because the company replaces the machinery instead of selling it, the company records a loss for the book value of the machinery removed: DR Accumulated depreciation $22,800 DR Loss on transaction $15,200 CR Property, plant, and equipment $38,000 The numbers provided in the solution chart net together the above journal entries such that the total e²ect on accumulated depreciation is a debit of $19,000. Printing Co. records the following journal entry related to the purchase of machinery on July 1, Year 4: DR Property, plant, and equipment $36,000 CR Accounts payable $36,000 Printing Co. capitalizes the cost of the machine as its cost exceeds $500. All costs related to the acquisition of the machinery are included in this journal entry. This includes the full invoice price ($34,000) as well as tax ($1,700) and shipping ($300). According to Printing Co.'s ±xed asset capitalization and depreciation policy, the company will depreciate the binding machine over a ±ve-year useful life, with a half-year convention. Using the half-year convention, Printing Co. records one-half year's depreciation expense in this year of purchase and one-half year's depreciation expense in the year of disposal. Annual depreciation expense totals $7,200 ($36,000 / 5 years). Note that there is no salvage value to consider in the calculation. The following journal entry records depreciation expense: DR Depreciation expense $3,600 CR Accumulated depreciation $3,600

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