Reference no: EM133116537
Question 1 - In 2021, Ellie's cupcakes upgraded her delivery vehicle by engaging in the following sale/purchase transactions:
Jan 3, 2021 - Sale of Delivery Van: Proceeds received were $15,000 cash. The December 31, 2020 financial statements indicated the original cost of the van was $65,000 and had accumulated depreciation of $57,000.
Jan 5, 2021 - Purchase of Delivery Van: Ellie put down $15,000 cash and signed a 1-year, $60,000, 6% note payable for the balance. Ellie also splurged and paid an additional $2,000 cash to have her company logo painted on the side of the van. Ellie expects to keep the vehicle for 5 years and anticipates that it will be worth $5,000 at the end of the 5 years. Company policy requires that vehicles are retained for a maximum of 100,000 kms, which Ellie expects will take the 5 years to reach, with the following annual breakdown:
2021 - 25,000 km
2022 - 22,000 km
2023 - 20,000 km
2024 - 18,000 km
2025 - 15,000 km
On September 30, 2024, after having driven the delivery vehicle for 13,500 km over the course of the year, Ellie decided to close her business and move to Australia. Ellie sold her vehicle for $15,000.
Required -
1. Record the January 2021 transactions in Ellie's journal with appropriate descriptions for each entry.
2. Record the adjusting journal entries required for depreciation for Ellie's ownership period (2021, 2022, 2023, and 2024) with appropriate descriptions for each entry.
3. Record the September 2024 transaction in Ellie's journal with appropriate descriptions for each entry.
Question 2 - Taylor's Treats needs your help in accounting for the following long-term asset transactions.
Jan 1, 2021 - Taylor's Treats purchased Matty's Muffins for $10 million cash. The market values of Matty's assets and liabilities are $15.5 million and $7.5 million, respectively.
Jan 2, 2021 - Taylor's Treats purchased land, a building and some equipment for a total cost of $900,000. At the time of acquisition, the land has a current fair value of $450,000, the building's fair value is $400,000 and the equipment's fair value is $150,000. Taylor paid $500,000 cash, and signed a note payable for the remainder.
December 31, 2021 - Depreciation is recorded as follows:
Equipment is depreciated by the double diminishing-balance method over a 5 year life with a $30,000 residual value. The building has a 40 year useful life and residual value of $50,000. Depreciation is calculated on a straight-line basis for the building.
December 31, 2022 - Depreciation is recorded.
January 1, 2023 - Sold all of the equipment for $50,000 cash.
Required -
1. Record the January 2021 transactions in Taylor's journal with appropriate descriptions for each entry.
2. Record the adjusting journal entries required for depreciation for Taylor for 2021 and 2022, with appropriate descriptions for each entry.
3. Record the January 1, 2023 transaction in Taylor's journal with appropriate descriptions for each entry.