Reference no: EM13535912
In June, Bill made several purchases to accommodate his growing business.
June 2
Purchased a storage location for lawn care equipment, paid $45,000 for a building on 1 acre. The land is appraised at $8,000. The building has an estimated life of 10 years with a $5,000 salvage value. Bill paid $2,000 down and financed the remaining purchase price with a 5% 5 year note.
4 Purchased a trailer to haul lawn care equipment for $2,300, estimated life is 5 years with no salvage value. Bill paid for the purchase in cash.
5 Purchased a gas powered trimmer for $1,200 and a commercial leaf-blower for $1,500. Bill estimates they will each have a two year life and no salvage value. Bill paid for both of these pieces of equipment on account.
These are in addition to the three assets Bill acquired in May:
Date Item Cost Estimated Life Salvage Value
May 2 Truck $5,000 5 years $500
5 Lawn Mower 300 2 years $0
5 Aerator 500 2 years $0
Depreciation was recorded in May for these assets using the straight-line method however Bill is considering other depreciation methods and has asked you to prepare a comparison of the straight-line method with the double declining balance (200% DDB) method before he decides.
Instructions:
1. Using the chart of accounts provided below and the Excel template provided with this assignment, record the transactions for the new assets purchased in June, 2014. Start with Page 7 for the journal entries. Explanations are optional.
2. Prepare a monthly schedule of depreciation for each of the seven assets for 2014 using 1) straight-line and 2) 200% DDB. (Assume assets purchased before the 15th of the month will be depreciated as if owned for the entire month). Remember that you are calculating monthly depreciation, not annual and adjust your depreciation rate. Carry your depreciation rate to four decimals and round the depreciation expense to two decimals.
3. Bill has decided that equipment will be depreciated using straight-line and the building using 200% DDB. Prepare the adjusting journal entries for depreciation for the month of June, 2014. Start with Page 8 for the adjusting journal entries. Explanations are optional.
BILL'S LAWN CARE
CHART OF ACCOUNTS
ASSETS REVENUES
101 Cash 401 Lawn Service Revenue
110 Accounts Receivable 410 Sales Revenue
112 Allowance for Doubtful Accounts 415 Sales Returns and Allowances
115 Notes Receivable 420 Interest Income
116 Interest Receivable
120 Supplies COST OF GOODS SOLD
130 Prepaid Insurance 501 Purchases
140 Inventory 505 Purchase Returns and Allowances
150 Equipment
152 Land EXPENSES
153 Building 620 Supplies Expense
155 Accumulated Depreciation - Equipment 630 Fuel Expense
156 Accumulated Depreciation - Building 640 Repair and Maintenance Expense 650 Advertising Expense
LIABILITIES 660 Insurance Expense
201 Accounts Payable 670 Depreciation Expense
220 Notes Payable 680 Interest Expense
225 Interest Payable 690 Bad Debt Expense
OWNER'S EQUITY
301 Owner's Capital
305 Owner's Drawings
310 Income Summary