(1) Prepare journal entries to record the following transactions of a newly setup company during the current year: 1 Jan Purchased an existing factory building with the surrounding land for $24,700,000 cash. Stamp duty was at 10% of the purchase price, estate agent commission was 1% of the purchase price, and $30,000 had to be spent to remove the debris and abandoned structures found on the estate. The company borrowed a 7%, 5-year, $10,000,000 note, to finance this acquisition and paid the remaining costs in cash. An appraisal of the land and building at the time of purchase indicated that the market value of the land was $20,000,000 and the market value of the building was $10,000,000. Land has an indefinite useful life whereas the building is expected to have a useful life of 20 years. Residual value for building is estimated to be $1,000,000. The building is to be depreciated using the straight method. 1 Jan Purchased an automated production machine from Germany at a purchase price of $500,000, fully paid in cash. The machine was purchased on FOB Shipping Point terms. Sea freight was at $10,000 inclusive of insurance. Custom duty was at 1% of the purchase price and land delivery costs $200. The machine had to be installed at a cost of $1,000 upon arrival at the factory. During the installation, a part of the machine was accidentally damaged which cost $200 to be restored to its original condition. To facilitate the installation, a professional engineer is required to certify the process which takes about 3 hours. The company is charged for the engineer's service at the rate of $250 per hour. The machine is estimated to have a useful life of 10 years at a residual value of $200,000. The double- declining balance method is to be used for depreciation on production machines. 1 Mar Purchased a truck for $100,000 with a 10-year useful life and a $10,000 residual value. The Certificate of Entitlement (COE) of $20,000 is required in order to drive the vehicle legally. Also paid 7% sales tax, $500 to paint the truck with the company's logo and name. All payments were in cash. The management has decided to depreciate Trucks using the units of production method. The total mileage estimated to be driven by the truck is 100,000km. For the current year, the total mileage driven by the truck was 10,000km. Summer 2020 MGA201 Introduction to Financial Accounting Coursework Page 2 31 Dec Record all necessary adjustments on an annual basis. (2) How many years will it take to fully depreciate the automated production machine? Compute the depreciation expense of the automated production machine in the final year of depreciation. (Round up all your answers to the nearest dollar.)
