Question

PA9-3 Analyzing and Recording Long-Lived Asset Transactions with Partial-Year Depreciation [LO 9-2, LO 9-3, LO 9-6]

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Precision Construction entered into the following transactions during a recent year.

January		2		Purchased a bulldozer for $268,000 by paying $29,000 cash and signing a $239,000 note due in five years.
January		3		Replaced the steel tracks on the bulldozer at a cost of $29,000, purchased on account. The new steel tracks increase the bulldozer's operating efficiency.
January		30		Wrote a check for the amount owed on account for the work completed on January 3.
February		1		Repaired the leather seat on the bulldozer and wrote a check for the full $1,700 cost.
March		1		Paid $9,000 cash for the rights to use computer software for a two-year period.

a.For the tangible and intangible assets acquired in the preceding transactions, determine the amount of depreciation and amortization that Precision Construction should report for the quarter ended March 31. The equipment is depreciated using the double-declining-balance method with a useful life of five years and $49,000 residual value.

b.Prepare a journal entry to record the depreciation and amortization calculated in requirement 2.

Answer 1

a) Amount of depreciation and amortization that Precision Construction should report for the quarter ended March 31:

Particulars	Cost
Cost of bulldozer	268,000
Replacement of steel tracks on the bulldozer	29,000
Total cost of bulldozer	297,000
Depreciation ( 297,000 * 1/5 * 2)	118,800
For the quarter ended March 31 (118,800 / 4)	29,700

Amortization of rights to use computer software = 9,000 / 24

= 375

Journal Entry:

Date	particulars	Debit	Credit
31st march	Depreciation a/c	29,700
	Amortization a/c	375
	To Accumulated Depreciation - bulldozer		29,700
	To Accumulated Amortization		375