Question 1 -
On 1st December 2015, Hamilton Car Wash purchased new high-tech computer operated washing equipment for all of its 10 washing centres. The list price of the equipment was $7,200 for the equipment needed at each centre. Because Hamilton Car Wash purchased 10 sets of equipment at one time, it was given a special "package price" at a discount of 10% for all the equipment. The company paid $20,000 of this amount in cash and took a 90 day loan (at 12% pa) for the balance. The loan was paid promptly on the due date along with accrued interest charges.
Freight charges for the delivery of the equipment totalled $5,274. A contractor was paid $1,500 per location to install the equipment at 6 of the centres. Management was able to find a less expensive contractor who installed the remaining 4 equipment at a cost of $900 per location. During the installation, one of the new machines was accidentally damaged by an employee of Hamilton Car Wash. The cost to repair this damage amounting to $700 was paid by the company.
As soon as the machines were installed, Hamilton Car Wash paid $3,900 for a series of radio commercials advertising that it now uses modern equipment in all its car wash centres. The company commenced using the machines from 1 March 2016. The equipment maintenance cost incurred in the first year of operation amounted in total to $2,400.
The company has a policy of depreciating the equipment, on a straight-line basis, over a period of 5 years. Depreciation is calculated on a monthly basis. The total salvage value of all the equipment at the end of year 5 is expected be $6,000. The company's accounting year ends on 30th June.
Required: Prepare journal entries to record the above transactions for the year ended 30th June 2016.
Question 2 -
On 1stApril 2010, Thames Limited purchased the 2A model of a machine to process bricks in its factory in Huntly. The list price of the machine was $2,000,000 and Thames Limited was given a special discount of 10% on the purchase. The company paid $500,000 of this amount and took a loan for the balance. The loan was paid promptly on the due date 30th September 2010 along with accrued interest charges of $60,000 of which $20,000 was for the period 1st August 2010 - 30th September 2010. Delivery charges for the machine totalled $2,000. A contractor was paid $18,000 to install the machine in the factory. The maintenance cost of the machine for the first year of operation amounted to $5,000. The maintenance cost was paid on 12th January 2011.
The use of the machine commenced on 31stJuly 2010. The company has a policy of depreciating the machine on the basis of machine hours used. When the machine was purchased it was initially assessed as having a life of 80,000 hours. During the financial year ended 31st December 2010, the machine operated for 24,000 hours. As at 31st December 2010 the value-in use of the machine was $1,200,000 and the net sales price was $500,000.
In January 2011 the machine was upgraded at a cost of $240,000. Management believes that this upgrade will add a further 20,000 hours of operating time to the life span of the machine. During the financial year ended 31 December 2011 the machine operated for 30,000 hours. As at 31st December 2011 the value-in use of the machine was $1,100,000 and the net sales price was $450,000.
On 20th January 2012 the company purchased a new model 3A of the machine and traded in the existing 2A model for $600,000. The purchase price of the new 3A model was $3,500,000. The balance of the purchase price of the new 3A model was settled by a bank loan. As at 20th January 2012 the company has used 60,000 hours of the existing 2A model.
Required:
(a) Prepare journal entries (without narrations) to record the acquisition and maintenance costs incurred for the year ended 31st December 2010.
(b) Compute the depreciation of the 2A model machine for the years ended 31st December 2010 and 31st December 2011.
(c) Prepare journal entries (without narration) to record depreciation charges of the 2A model machine for the years ended 31st December 2010 and 31st December 2011.
(d) Prepare journal entries (without narrations) to record the cost of the major upgrade of the 2A model machine during the year ended 31st December 2011.
(e) Prepare journal entries (without narrations) to record the disposal of the 2A model and purchase of the new 3A model machine on 20th January 2012.