Arnison Company has a December 31 fiscal year end and follows ASPE. The following selected transactions are

Question:

Arnison Company has a December 31 fiscal year end and follows ASPE. The following selected transactions are related to its property, plant, and equipment in 2021:

Jan. 12 All of the company?s light bulbs were converted to energy-efficient bulbs for $2,200.

Arnison expects that this will save money on its utility bills in the future.

Feb. 6 Paid $5,400 to paint equipment that had started to rust.

Apr. 24 An air conditioning system was installed in the factory for $75,000.

May 17 Safety training was given to factory employees on using the equipment at a cost of $3,100.

July 19 Windows broken in a labour dispute (not covered by insurance) were replaced for $5,900.

Aug. 21 Paid $26,000 to convert the company?s delivery vehicles from gasoline to propane.

Arnison expects this will substantially reduce the vehicles? future operating costs and consequently improve efficiency, but it will not extend the vehicles? useful lives.

Sept. 20 The exhaust system in a delivery vehicle was repaired for $2,700.

Oct. 25 New parts were added to equipment for $20,000. Arnison expects this will increase the equipment?s useful life by four years.

Dec. 31 After recording annual depreciation, Arnison reviewed its property, plant, and equipment for possible impairment. Arnison determined the following:

1. Land that originally cost $200,000 had previously been written down to $175,000 in 2018 as a result of a decline in the recoverable amount. The current recoverable amount of the land is $220,000.

2. The recoverable amount of equipment that originally cost $150,000 and has accumulated depreciation of $62,500 is $50,000.

Instructions

a. For each of these transactions, indicate if the transaction increased (+) or decreased (?) Land; Building; Equipment; Accumulated Depreciation; total property, plant, and equipment (PP&E); and profit, and by how much. If the item is not changed, write ?NE? to indicate there is no effect. Use the following format, in which the first one has been done for you as an example.

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b. Prepare journal entries to record the above transactions. All transactions are paid in cash.

Assume that Arnison also purchases equipment with an expected useful life of 12 years. Assume also that the equipment?s engine will need to be replaced every four years. Which useful life should Arnison use when calculating depreciation on the equipment? Explain.

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Related Book For  book-img-for-question

Accounting Principles Volume 1

ISBN: 978-1119502425

8th Canadian Edition

Authors: Jerry J. Weygandt, Donald E. Kieso, Paul D. Kimmel, Barbara Trenholm, Valerie Warren, Lori Novak

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