According to the trial balance, Economy Small Engine Repair's property, plant and equipment balances as at December 31, 2020 were as follows: Account Balance Repair equipment $6,000 Dr. Accumulated depreciation - Repair equipment 250 Cr. Computer equipment 2,500 Dr. Accumulated depreciation - computer equipment 167 Cr. Based on your earlier estimates, the useful lives of the repair and computer equipment are 8 years and 5 years, respectively. ESER's policy is to record a full month of depreciation if an asset is used at any time during the month. So far in 2021, you have not recorded any journal entries related to ESER's property, plant and equipment After reviewing the financial statements for the year ended December 31, 2020, Bob realized that ESER has the potential to generate substantial profits. Recently, Bob has had to turn repairs away due to the size of the shop in his garage. He has been thinking about it for a while but now has decided to buy a building to grow profits even further. You talk to Bob and find out that he has contacted a real estate agent. The agent showed him several properties available for rent and purchase. He liked a small store located in the light industrial area just North of downtown. With the help of the real estate agent, he negotiated the purchase of the store for $300,000, which includes $50,000 related to the land and $250,000 related to the building. The purchase price of $300,000 also includes $12,000 of real estate commissions. The previous owner was behind on the property taxes related to the building. Under the terms of the purchase agreement, the City of Regina is entitled to recover past due property taxes of $1,500 from Bob. Lastly, he was required to purchase a property and liability insurance policy related to the property at a cost of $1,240. The policy is effective from March 15, 2021 to March 14, 2018 as title to the new location officially transferred March 15, 2021. All amounts other than the insurance policy were paid for with a $30,000 cash payment and the remainder financed with a 25-year mortgage payable to the Royal Bank of Canada. The amount owing to the insurance company was paid on March 20, 2021 with cheque #98. Tasks 1. Before you can prepare the journal entries related to the purchase of the store, it is necessary to determine its cost. You decided to document the amounts that should be included and excluded from the cost of the land and building purchased along with your reasoning. 2. Now that you have determined the cost of the land and building, you decided to journalize the purchase 3. Having studied accounting for property, plant and equipment and depreciation in BUS 285, you decided to consider the most appropriate method to depreciate the new building and the repair and computer equipment. (Currently straight line for the computer and repair equipment.) 4. You have decided that you will not change ESER's depreciation methods. Before finalizing the accounts for March 2021, you decided to record the depreciation expense for the month of March. You expect that the new building will be used for 25 years at which time it will be sold for $95,000. (January and February have been completed.) 5. Also in March 2021, you applied for a patent for a repair tool that Bob has fabricated to makes it easier to do certain repairs on small engines. The patent application had a cost of $500 and you paid a lawyer another $2,500 to help complete the necessary paperwork. On March 29, 2021, the government approved your patent application, protecting the tool for 20 years. You need to record the patent as an intangible asset and record amortization for March 2021. Similar to ESER's property, plant and equipment, you plan to record amortization expense if intangible assets are in use for any part of a month
