Question
Bay Inc. purchased some new equipment on January 1, 2019, with a list price of $50,000. The supplier agreed to accept a deposit of $20,000
Bay Inc. purchased some new equipment on January 1, 2019, with a list price of $50,000. The supplier agreed to accept a deposit of $20,000 on the date of purchase and a promissory note requiring payment of $10,000 on each December 31 for the next three years (December 31, 2019, to December 31, 2021). Bay is pleased that no interest is charged on the note since its bank would have charged 7% interest.
The equipment arrived on January 5, 2019, with a separate invoice of $2,000 for freight and transporting the equipment. The machine had several test runs in March and April 2019 at a total cost of $4,000, and it became operational on May 1, 2019. It is expected to last eight years from the date depreciation starts, and it has a residual value of $6,000.
Required
a. Prepare all journal entries that Bay should record relating to the items described above for the year ended December 31, 2019. Wayfair uses the double-declining-balance method of depreciation for all of its property, plant and equipment. Show your calculations.
b. Wayfair also has a separate division that specializes in the sale of small appliances. At the 2019 fiscal year end, Wayfair had three key inventory items which may require a writedown. The cost and estimated net realizable values (NRVs) of the items are as follows:
Per Unit
Quantity Cost NRV
Juicer. 3,000 $25 $30
Bread Toaster 3,500 $30 $28
Oven 1,900 $24 $20
Calculate the amount (if any) that inventory should be written down by if the lower of cost and NRV is applied on an item-by-item basis. Provide the journal entry (if any) to record the writedown on inventory. Bay uses the inventory allowance method.
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started