QUESTION 2 (20 Marks)

Each of the following are considered independent situations.

1. Holiday Workout purchases a complete fitness centre from Golden Health Spas. Holiday purchases the entire facility at a bargain price of $800,000. Holiday pays $400,000 cash and the remainder is financed by a Long term Note Payable. The appraised value of the components purchased are outlined below:

Land $ 250,000

Land Improvements 50,000

Building 300,000

Equipment 400,000

Total $1,000,000

Calculate the cost which will be recorded in the accounting records of Holiday Workout and prepare the journal entry. Show all calculations for full marks. (4 Marks)

2. Jaisal purchased a building as a maintenance shop on April 1, 2017, for $600,000. The buildings estimated life is 18 years and its estimated residual value is $60,000. The companys fiscal year ends on December 31, 2017. Calculate depreciation for the fiscal year 2017 on the building if the policy of the company is: (4 marks)

1. The half-year rule is used for all purchases and disposals
2. The company calculates depreciation to the nearest whole month

3. Marks Dairy purchased an ice cream machine at a cost of $400,000 and the

company originally believed the asset had a 16-year useful life with no residual value. The company uses the straight line method and has used the machine for four years. There were no betterments during this time. From its experience with the asset during the first four years, management believes the asset will remain useful for the next 20 years and at that time have no residual value. At the end of year 5, the company would compute a revised annual amortization amount.

1. Calculate the accumulated amortization and book value of the asset at the end of year 4. (2 Marks)
2. Calculate what the revised amortization would be at the end of Year 5. (2 Marks)

4. Gurpreet and Shavi own a jewelry stand and decide to sell it on March 1, 2017. The adjusted balances on February 28, 2017 are as follows: (8 Marks)

Jewelry Stand $50,000

Accumulated Depreciation, Jewelry Stand 30,000

Calculate the gain or loss on the sale and record the journal entries for the sale for each of the situations below, assuming the cash proceeds were:

1. $20,000
2. $24,000
3. $15,000
4. $0 the stand was scrapped