Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

A10-26 comprehensive long-lived asset transactions and depreciation: MH Plumbing Inc. (MH) is the largest plumbing contractor in Moncton, Alberta. Information on selected transactions/events is given

A10-26 comprehensive long-lived asset transactions and depreciation:

MH Plumbing Inc. (MH) is the largest plumbing contractor in Moncton, Alberta. Information on selected transactions/events is given below:

a) On 15 January 20X2, MH purchased land and a warehouse building for $455,000. The land was appraised at $175,000, while the building was appraised at $375,000.

b) During January and February 20X2, MH spent $53,200 on the warehouse building, renovating it for its expected use as a storage and shipping facility.

c) MH used the warehouse building from February 20X2 until August 20X7. The building was expected to have a 20-year life and a residual value of $11,000

d) In late August 20X7, MH traded the warehouse and land for another facility on the other side of town. The second facility was slightly larger. MH paid $33,750 to the vendor, and $19,800 in legal fees as a result of the transaction. The new warehouse was appraised at $425,000, and the new land at $180,000. The warehouse facility was expected to have a useful life of 18 years and a residual value of $7,800.

e) MH used the new warehouse facility from August 20X7 until February 20X9. At that time, a fire destroyed the warehouse. MH received $356,800 from the insurance company.

f) MH called for tenders for construction of a new warehouse building in March 20X9, but the lowest bid was $788,000. The company decided to self-construct and began in May 20X9. Monies spent were as follows:

Architect fees $80,000

Removing debris from building site 13,400

Material cost for construction 245,800

Labour cost for construction 199,600

Parking lot 45,200

Specific overhead assigned to construction 24,800

Interest on loans related to construction 34,100

g) MH received a $100,000 investment tax credit in 20X9 as a result of the building activities, which reduced 20X9 taxes payable

h) MH occupied its new warehouse in September 20X9. It was appraised at $650,000. It was expected to last for 25 years, and have a residual value of $20,000.

Required: Prepare journal entries to record all transactions listed above, including annual depreciation to the end of 20X9. Record annual depreciation using a declining-valance method of 10% for buildings, and 5% for parking lots. MH records a full year of depreciation in the year of acquisition and no amortization in the year of disposal. Justify any decisions made with respect to accounting policy or application.

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image_2

Step: 3

blur-text-image_3

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Financial Accounting International Edition

Authors: Jerry J. Weygandt, Donald E. Kieso, Paul D. Kimmel

6th Edition

978-0470623275

More Books

Students also viewed these Accounting questions

Question

=+3. What are the characteristics of media enterprises?

Answered: 1 week ago

Question

=+1. What are the product specifications of media products?

Answered: 1 week ago