Question
P1 D&D Construction Ltd. is based in Maitland, Nova Scotia. The company takes on construction jobs ranging from small contracts worth just a few thousand
P1
D&D Construction Ltd. is based in Maitland, Nova Scotia. The company takes on construction
jobs ranging from small contracts worth just a few thousand dollars to multi-million-dollar
projects. It only prepares accrual and adjusting entries at year end.
The following four significant transactions have occurred in 20X7, and may have possible yearend
adjustment implications:
a) Land
D&D accounts for land using the revaluation model. The company has only one parcel of
land. It is recorded in the statement of financial position by D&D at $3.2 million. In 20X7,
the value of the land was assessed, and found to be $3 million. No revaluation adjustments
have been recorded in the past.
What is the journal entry to record the change in value of the land.
b) Plant and equipment
Details of D&D's property, plant, and equipment are provided in the data file.
Buildings, mobile equipment, automobiles, and office equipment are depreciated using the
straight-line method. Tools and equipment are depreciated using the declining balance
method. The depreciation rates on tools and equipment vary from 17.5% to 33% per year.
Computer equipment is depreciated using a double-declining rate method at 62.5% per
year.
On January 1, 20X7, warehouse equipment with a cost of $85,600 was delivered. The
equipment was immediately put into service. The useful life is expected to be 11 years, with
an expected residual value of $10,500. This equipment is depreciated using the declining
balance method at a rate of 17.5%. The invoice for this equipment was received and paid,
but was inadvertently not recorded.
On December 31, 20X7, the company disposed of several hand tools. The cost of these
tools was $21,300, and accumulated depreciation as at December 31, 20X6, was $18,899.
The equipment sold for total proceeds of $6,500. The funds received were recorded by the
company as a gain on sale of property, plant and equipment of $6,500.
Depreciation for 20X7 has not yet been recorded for any of the property, plant, and
equipment (PPE) held by the company.
What are the necessary journal entries to record and correct the PPE transactions detailed
above.
c) Equipment patent
D&D registered a patent on January 1, 20X0. The expected useful life of the patent was 10
years. The patent was capitalized at $110,000. The net book value at January 1, 20X7, was
$33,000. On December 31, 20X7, the patent was tested for impairment and it was
determined that it had no further value.
What are any necessary journal entries associated with D&D's equipment patent for 20X7.
d) Saw patent
During 20X7, D&D applied for a patent on a specialized saw; on December 20, 20X7, D&D
was advised that the patent process was finished and the company's patent was properly
registered as at that date. The saw saves on setup time, which is highly valuable in the
construction business. It took several years to perfect the now-patented saw.
The following is a breakdown of costs incurred by the company regarding the patent:
D&D's owner believes that his own time spent working on the design and testing various
prototypes over just the past five years is worth approximately $65,000.
Fees paid to Canadian patent lawyers to help register the patent in Canada totalled
$7,500.
Fees paid to American patent lawyers to register the patent in the United States were
$3,500 (in Canadian equivalent).
Fees paid to technical investigators were $4,500.
Fees paid to the patent offices to help register the patent were $2,300.
In total, the costs related to the patent are $82,800, excluding any taxes.
The amount paid for the owner's time is included in the accounting records in wages,
salaries, and benefits. The fees to the patent offices were charged to the fees, licences,
and registrations account. The other items paid to lawyers and technical investigators were
all charged to professional fees when they were paid. The fees to lawyers, technical
specialists, and patent offices were all paid during 20X7. The owner believes that he spent
approximately an equal amount of time on the project for each of the years from 20X3 to
20X7. The patent is protected for 20 years in both Canada and the United States.
Management believes that the patent will have value for the entire 20-year period of
protection. Amortization on the patent will begin in the 20X8 fiscal year.
What are the journal entry to properly recognize the saw patent.
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