Reference no: EM132973368

At the end of Sovereign Ltd's financial year, 30 June 2019, the following items must be resolved before adjusting entries and financial statements are prepared. Ignore GST.

1. On 1 July 2018, Sovereign Ltd purchased a used machine for $48 000 cash. The cost was debited to the Machinery account. Prior to use, additional cash expenditures were made for painting and repairing the machine, $4200, and installing and testing the machine, $3000. These additional expenditures were debited to Repairs and Maintenance Expense. The repairs and installation were completed on 1 October 2018, and the machine was put to use. The machine has a useful life of 5 years with a residual value of $4000. Sovereign Ltd uses straight-line depreciation and records depreciation to the nearest month.

2. Land and a building were purchased on 2 July 2018 for $180 000 cash, debited to the Land account. The appraised values of the building and land were $100 000 and $60 000, respectively. The building has a useful life of 20 years with a residual value of $6000. Sovereign Ltd uses straight-line depreciation for buildings.

3. A new truck was purchased on 1 March 2019; Sovereign Ltd paid cash of $55 500 and also obtained a 12-month loan payable for the amount of $30 000. The Trucks account was debited for $85 500. The truck has a useful life of 4 years with a residual value of $20 000 and is to be depreciated by the diminishing balance method. However, due to an oversight, the business used the straight-line method.

Required

Problem (a) Prepare journal entries on 30 June 2019 to correct the accounts.

Problem (b) Prepare journal entries as necessary to record depreciation expense after the corrections in requirement (a) have been made.