Haggis Incorporated, a manufacturer of steel products, began operations on January 1, 2020. Below are the transactions relating to the acquisitions and disposals of capital assets for the year ended December 31, 2020, and the first part of 2021. Haggis Incorporated is a privately held corporation.

2020

Jan 2 Paid $8,000 in legal fees to form the corporation.

Jan 2 Purchased Land and Building at a total cost of $890,000. At the time of the acquisition, the land had an appraised value of $72,000 and the building had an appraised value of $828,000. The building has an estimated service life of 30 years, an estimated salvage value of $30,000 and will be depreciated on a straight-line basis.

Commenced construction of Machine #3

Machine #1 was donated to the company by a shareholder of the company. An independent appraisal placed the market value at $34,000 and the salvage value at $2,000. Installation costs of $800 were paid by Haggis Incorporated. The machine has an estimated useful life of 10 years and will be depreciated on a declining balance basis at double the straight-line rate.

Machine #2 was acquired with a down payment of $4,000 with the remaining balance to be paid in 10 equal instalments of $4,000, beginning Jan. 3, 2021. The prevailing interest rate was 18% on debts of a similar type. It is estimated that machine #2 will produce 40,000 units over its estimated life of 8 years, after which it will be sold for approximately $2,000. The machine will be depreciated using the units-of-production method. As of December 31, 2020, the machine had produced 5,500 units.

Feb 8 Issued 500 common shares in exchange for a telephone system. The shares had a fair market value of $10.375 per share at the close of business on this date. The suggested list price of the system was $5,800. The telephone system has an estimated useful life of 5 years over which time it will provide approximately 6,000 hours of service. The system will have no resale value at the end of the 5 years. The units-of-production method will be used to calculate depreciation on the system and as of December 31, 2020, the system had been used 1,000 hours.

Apr 2 Purchased on credit, a delivery truck at a list price of $25,000; terms 3/10, n/60. The truck has an estimated useful life of 10 years, at which time it can be sold for approximately $4,500. The truck will be depreciated on a declining balance basis at double the straight-line rate.

Apr 3 Paid $650 cash for installation of racks and shelves in the delivery truck, which was required to make it operationally suitable.

Apr 30 Paid for the delivery truck

May 2 Finished construction of Machine #3, which had begun on January 2, 2020. The costs incurred charged to the "Machine under Construction" account included raw materials, $5,750 and labour, $5,000. The total hydro costs from Jan. 1 to May 2, 2020, were $25,000 of which 5% was directly attributable to the construction of Machine #3. These costs were originally charged to the "Hydro Expense" account. The company would have been able to purchase Machine #3, for $11,800. Upon completion of the machine, the company received an incentive grant from the provincial government for $2,000. Note: You can choose whichever method you would like to record the grant (hint: remember there are two), however all of your entries must be consistent with the method you have chosen.

Machine #3 has an estimated service life of 4 years, an estimated salvage value of $2,500 and will be depreciated using the sum-of the-years-digits method

June 1 Purchased the assets and liabilities of DMF Corporation for a negotiated price of $400,000. The book values and market values were as follows:

book market value

ASSests

account receivable 60000 6000

inventories 190000 327000

patents 0 18000

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255000 405000

Liabilities

account payable 55000 55000

The remaining economic life of the patent is estimated to be 10 years.

July 2 Purchased a computer for cash of $5,500. The computer has an estimated service life of 5 years, an estimated salvage value of $500 and will be depreciated on a straight-line basis.

Dec 31 Recorded accrued interest on the note payable dated January 3, 2020. (Make life easier and calculate the interest for the whole year, don't worry about the number of days.

Dec 31 Recorded depreciation/amortization on all capital assets (tangible and intangible).

2021

Jan 3 Paid the first instalment on the note payable dated January 3, 2020.

Mar 1 Exchanged the delivery truck for a new one and paid $6,000 cash. The new truck had a list price (market value) of $30,000.

Required:

(1) Prepare journal entries to record all of the above transactions from January 1, 2020, to March 1, 2021, including the year-end adjustments for depreciation, amortization and accrued interest at December 31, 2020. For any time-based depreciation calculations, the company's policy is to record depreciation based on the number of months ownership in the year of acquisition. Assume that Haggis Incorporated is a PE (Private Entity). Please show ALL applicable calculations below each journal entry.

(2) to prepare your solution to this requirement, assume that Haggis Incorporated is a PAE (Publicly Accountable Enterprise) and has chosen to use the Revaluation Model for its property, plant and equipment. When the financial statements for the year ended December 31, 2020, were being prepared, it was discovered that the value of the land and building had significantly increased in value since the date of purchase and Haggis Incorporated wishes to record the effects of this increase in the 2020 financial statements. The total value of the land and building had increased to $1.2 million ($1,200,000) with 20% of the value assigned to the land and 80% of the value assigned to the building. Prepare all of the necessary adjusting entries as at December 31, 2020.