Challenge Reflaction

Task 5: At the start of Year 3, the sisters purchase property, plant, equipment, and intangible assets to ensure that HHEC.com is ready to handle the large volume of sales they expect. Throughout the year they continue to purchase property, plant, and equipment and dispose of some of their older equipment. As HHEC.com’s bookkeeper, Sophia is unsure of how to record these transactions and how to calculate the annual amount of depreciation expense on these assets. Sophia provides you with a list of purchases and disposals during the year and asks you to record these transactions in the general journal. She then asks you to calculate annual depreciation expense under various depreciation methods.

At the end of Year 2. HHEC reported the following property, plant, and equipment

Building 150,000 Accumulated Depreciation - Building 15,000 135,000 Trucks 350,000 Accumulated Depreciation - Trucks 35,000 315,000 Land 275,000 Office Equipment 78,000 Accumulated Depreciation - Office Equipment 7,800 70,200

Total Property, plant, and equipment 795,200

During Year, the following selected cash transactions occurred.

January 1 Purchased land for $225,000. January 1 Purchased packaging equipment for 450,000. January 1 Purdhased a patent for $75,000.

March 1 Sold office equipment that cost 78,000 when purchased on January 1, Year 2. The equipment was sold for $75,000 May 1 Sold land purchased on June 1, Year 2 for 175,000. The land cost $200,000.

The packaging equipment that HHEC.Com purchased on January 1, Year 3 has an estimated useful life of 5 years and an estimated residual value of $30,000. for Year 3 and Year

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Calculate deprecation expense for Year 3 and Year 4 under each of the following methods. The equipment is estimated to produce 150,000 units. During Year 3 and Year 4, the equipment produced 25,000 and 40,000 units, respectively. The patent that HHEC.Com purchased on January 1, Year 3 has an estimated useful life of 20 years.

ANSWER Debit Credit Land 225,000

Cash 225,000

Equipment 450,000 Cash 450,000

Patent 75,000 Cash 75,000

Cash 75,000 Accumulated Depreciation - Equipment 7,800 Equipment 78,000 Gain on Disposal of Equipment 4,800

Cash 175,000 Loss on Disposal of Land 25,000 Land 200,000

Year 3 Year 4 Depreciation Expense - Building 15,000 15,000 Depreciation Expense - Truck 35,000 35,000 Depreciation Expense - Packaging Equipment 84,000 84,000 Straight Line Method Amortization Patent 3,750 3,750

Annual Depreciation 137,750 137,750

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Depreciation Expense - Building 30,000 26,250 Double Declining Depreciation Expense - Truck 70,000 61,250 Depreciation Expense - Packaging Equipment 168,000 126,000 Amortization Patent 7,500 7,105

Annual Depreciation 275,500 220,605

20X3 20X4 Depreciation Expense - Building 15,000 15,000 Units of Production Depreciation Expense - Truck 35,000 35,000 Depreciation Expense - Packaging Equipment 70,000 112,000 Amortization Patent 3,750 3,750

Annual Depreciation 123,750 165,750

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