Tutorial Week 3 Topic 4: Accounting for assets
Text Book Questions
Review Question 15, 18
Minor change in Review question 18. Please change the phrase to “of which $300 000 related to the factory land…”
Challenging Question 21
On 1st December 2011, Hamilton Car Wash purchased a 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 $19,980 of this amount in cash and took a 180 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 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 use of the washing equipment commenced on 1st March 2012. The company’s accounting year ended on 30th June.
Prepare journal entries to record all transactions for the year ended 30th June 2012.