1

On 2 January 2015, Powerhouse Ltd purchased, by exchanging $210,000 cash and a $126,000, 12%, 18-month finance company loan, assets with the following independently determined appraised values:

Appraised value

Building $224,000

Land: 56,000

Machinery and equipment 70,000

Total $350,000

The estimated useful life of the building is 30 years and its residual value is $14,000. The $70,000 machinery and equipment amount consists of three machines independently valued at $21,000 each and some office equipment valued at $7,000. The estimated useful lives and residual values for these assets are:

Useful life Residual value

Machine 1 6 years $2,100

Machine 2 9 years 2,100

Machine 3 4 years 2,800

Office equipment 5 years 400

Powerhouse Ltd uses the straight-line depreciation method. Ignore GST.

A.

Prepare journal entries (in general journal form) to record the following.

1. The purchase of the assets.

2015 Jan. 2

(To record purchase of various assets)

2. The accrual of interest expense on the loan on 31 December 2015.

2015 Dec. 31

(To record annual interest. Not a qualifying asset)

3. Depreciation expense for the year 2015.

2015 Dec. 31

(To record annual depreciation)

4. The payment of the loan on 2 July 2016.

2015 Dec. 31

(To record repayment of loan plus interest)