Mon-Royal Co. purchased equipment on January 1, 2017 for $3,000,000 and paid cash for $2,000,000 and issued a 2-year note payable for the rest. Mon-Royal Co. also paid $20,000 cash for shipping and installation of the equipment.

Other information

• Estimated useful life of the equipment at the time of purchase, 10 years.
• Estimated salvage (residual) value at the time of purchase, $320,000.
• The company uses the straight-line method of depreciation.
• The companys fiscal year coincides with the calendar year.
• On January 1, 2019 the equipment needed a major repair. The company paid $400,000 to repair the equipment. Based on an expert opinion, the repair will increase the useful life of the equipment for two years, however the residual value remains the same.
• On July 1, 2020 the company sold the equipment for $2,400,000 cash.

• 1)The journal entry prepared by Mon-Royal Co. to record the acquisition of equipment on January 1, 2017 is

  a. Dr. Equipment $3,000,000, installation expense $20,000; Cr. Cash $2,020,000, Cr. Note payable $1,000,000.

  b.Dr. Equipment $3,000,000; Cr. Cash $2,000,000, Cr. Note payable $1,000,000.

  c.Dr. Stock $3,020,000; Cr. Cash $2,020,000, Cr. Note payable $1,000,000.

  d.Dr. Equipment $3,020,000; Cr. Cash $2,020,000, Cr. Note payable $1,000,000.

• 2) What would be the amount of depreciation expense based on straight line method for the year 2017 and 2018

  a.650,000 for year 2017 and 650,000 for year 2018.

  b.270,000 for year 2017 and 270,000 for year 2018.

  c.600,000 for year 2017 and 700,000 for year 2018.

  d.540,000 for year 2017 and 560,000 for year 2018.

• 3) The journal entry prepared by Mon-Royal Co. to record the depreciation expense for year 2018 is

  a.Dr. Depreciation expense 560,000; Cr. Equipment 560,000.

  b.Dr. Depreciation expense 270,000; Cr. Equipment 270,000.

  c.Dr. Depreciation expense 270,000; Cr. Accumulated Depreciation 270,000.

  d.Dr. Depreciation expense 560,000; Cr. Accumulated Depreciation 560,000.

• 4)

  Prepare the journal entry to record the major repair

  a.Dr. Repairs expense 400,000; Cr. Cash $400,000.

  b.Dr. Equipment $400,000; Cr. Accounts Payable $400,000.

  c.Dr. Repairs and maintenance expense $400,000; Cr. Cash $400,000.

  d.Dr. Equipment $400,000; Cr. Cash $400,000.

• 5)

  What is the necessary journal entry to record depreciation expense for 2019

  a.Dr. Depreciation Expense $270,000; Cr. Accumulated Depreciation $270,000.

  b.Dr. Depreciation Expense $256,000; Cr. equipment $256,000.

  c.Dr. Depreciation Expense $256,000; Cr. Accumulated Depreciation $256,000.

  d.None.

• 6) The journal entry in 2020 to record the sale of the equipment is (consider that depreciation expense entry has been correctly recorded)

  a.Dr. Cash 2,400,000; Dr. Gain $96,000; Dr. Accumulated depreciation-equipment $924,000; Cr. Equipment $3,420,000.

  b.Dr. Impairment loss $2,400,000, Cr. Cash $270,000; Cr. Accumulated depreciation-equipment $2,130,000.

  c.Dr. Cash 2,400,000; Dr. Loss $96,000; Dr. Accumulated depreciation-equipment $924,000; Cr. Equipment $3,420,000.

  d.Dr. Depreciation expense 302,000, Cr. Accumulated depreciation-equipment 302,000.

• 7) Assume for this part only, the company uses double-declining method of depreciation. Calculate the amount of depreciation expense for the year 2017 and 2018.

  a.$483,200 for year 2017 and $604,000 for year 2018.

  b.$604,000 for year 2017 and $483,200 for year 2018.

  c.$500,000 for year 2017 and $400,000 for year 2018.

  d.None.