Reference no: EM133032325
Question - Perth Construction Company - The Perth Construction Company purchased a piece of machinery on June 29, 2013 for $53 000. Freight costs came to $800. It cost $1 700 to install and test the machinery. At this time it was estimated that the machine would be used for six years and would have a residual value of $8 000 at that time.
Before recording the 2016 amortization expense, the owners realized that this machinery would last only five years, and therefore revised the amortization expense calculation.
On July 2, 2017, the machine broke down and rather than repair it, the company decided to sell it for $12 000.
Required -
a) Prepare the journal entry to record the purchase of the machine on June 29, 2013.
b) Calculate the amortization charges that would appear on the 2013 and 2014 income statements, using the straight line method of amortization.
c) Show the journal entry for the 2013 amortization.
d) Show how the machine would appear in the Perth Construction Company Balance Sheet on December 31, 2015, presuming the straight-line method of amortization is used.
e) Briefly explain why no journal entry would be made to correct previous years' records after the new estimate in 2016 for expected life. Give one GAAP to support your argument.
f) Prepare the journal entry for the July 2, 2017 transaction.