Question

NO ITS NOT !!Please if you can exaplain step by STEP and the t account that would be helpful

Masco industries , a new york corporation , purchased a machinery from Canton , Ohio on April 1, 2013 . The purchase price was $950,000. The machinery had an estimated usefullife of 10 years . The estimated residual value is $50,000 . Masco uses straight line depreciation method .

The following cost were incured

Shipping cost 20,000 Insurance in transit 4,000 instalation cost 10,000 NYS insepction fee 1,000

the machinery was deemed to be impared on december 31 2017 . The loss on impairement was 15,000,000.

Masco sold the equipment for 40,000,000 on july 1 2018 .

REQUIREMENT : CREATE A COMPLETE SET OF ACCOUNTING RECORDS INCLUDING JOURNAL ENTIES AND THE GENERAL LEDGER ACCOUNTS .

Answer 1

The orginal purchase price of an Asset should include all costs that are required to bring the asset to a working condition. The Shipping Cost, Insurance in transit, Installation Cost and Inspection fee 1000 are assumed to be necessary to bring the asset to a working condition and hence added to the purchase cost

Total Purchase Cost = 950000 + 20000 + 4000 + 10000 + 1000 = 985,000

On purchase of the asset, the following journal should be passed:

		Debit	Credit
01-Apr-13	Machinery	9,85,000
	Cash		9,85,000

Considering a residual value of 50,000 and useful life of 10 years, the Annual depreciation would be :

(Purchase Cost - Salvage Value)/ Useful Life = (985000 - 50000)/10 = $93,500

Depreciation for 9 months is 9/12 X 93,500 = 70,125.

On 31 Dec 2013 we would pass the depreciation entry for the 9 month period:

		Debit	Credit
31 December 2013	Deprection Expense	70,125
	Machinery		70,125

At the end of each of the years, 31 Dec 2014, 31 Dec 2015, 31 Dec 2016 and 31 Dec 2017, we would record the following depreciation entries:

		Debit	Credit
31 December 2014	Deprection Expense	93,500
	Machinery		93,500
31 December 2015	Deprection Expense	93,500
	Machinery		93,500
31 December 2016	Deprection Expense	93,500
	Machinery		93,500
31 December 2017	Deprection Expense	93,500
	Machinery		93,500

The impairment loss given in the question is assumed to be $40,000(Since $40,000,0000 would not be possible)

on 31 December 2017, we would further reduce the value of the machinery by 40,000 by impairing it:

		Debit	Credit
31 December 2017	Impairment Loss	40,000
	Machinery		40,000

The adjusted annual depreciation on the asset post impairment would be:

(Purchase Value - Depreciation expenses so far - Impairment Loss - Salvage Value)/ Remaining useful life = 450,875/5.25 years = $85,881

Depreciation for 6 Months from 1 Jan 2018 to 1 Jul 2018 would be $42,940. The Following depreciation entry would be passed at the time of sale:

		Debit	Credit
01 July 2018	Deprection Expense	42,940
	Machinery		42,940

The Net book value at the time of sale is 450,875 - 42,940 = 407,935

(The Sale price is assumed to be 400,000 as 40,000,000 would not make senes.)

The sale would be recored as follows:

		Debit	Credit
01 July 2018	Cash from Sale	4,00,000
	Loss on Sale	7,935
	Machinery		4,07,935

The T-Account for Machinery Account over the years would look as follows:

Date	Account Name	Amount	Date	Account Name	Amount
1-Apr-13	Cash	985,000	31-Dec-13	Depreciation	70,125
			31-Dec-14	Depreciation	93,500
			31-Dec-15	Depreciation	93,500
			31-Dec-16	Depreciation	93,500
			31-Dec-17	Depreciation	93,500
			31-Dec-17	Impairment loss	40,000
			1-Jul-18	Depreciation	85,881
			1-Jul-18	Cash on sale	4,00,000
			1-Jul-18	Loss on Sale	7935
	TOTAL	985,000		TOTAL	985,000