Question 37 After meeting with Soft ware Solutions, as described in Chapter 8, Emily was able to negotiate credit terms of 30 days and decided to take on the additional work offered by Software Solutions. In order to better handle this work, ABC decided to upgrade its computer equipment and hire two additional employees. After some research and much discussion, the computer upgrades and costs were determined to be as follows: 1. Old server will be retired and donated to the community centre. It was originally purchased for $5,575 on January 3, 2014. It is being depreciated on a straight-line basis over a five-year useful life with no residual value. 2. Purchase of a new server, including installation, $32,300 3. Purchase of computing equipment for the new employees at a cost of $8,030. 4. Purchase of additional yearly software usage licences for the two new employees at a cost of $1,360 each. 5. Purchase of additional office furniture at a cost of $2.790, plus delivery and shipping costs of $610 6. Additional insurance is required, $980 per year. 7. Rearranging the office space and repainting the office to "freshen things up at a cost of $3,730. Doug, Bev, and Emily anticipate that the cost of the upgrade can be financed with cash the company currently has in the bank. The upgrades will take place between Christmas and New Year's when the sales at the business are a little slower. If all goes smoothly, the new equipment will be installed and ready for use by January 2, 2018 Emily is concerned about how to record these transactions in the accounting records. She is not certain which costs should be capitalized and which should be expensed. Identify which of the above costs should be capitalized and which should be expensed. Total costs to be capitalized $ The should be expensed SHOW UST OF ACCOUNTS Prepare the journal entries to record the retirement of the old server (item 1) on January 2, 2018, for no proceeds. The last time depreciation was recorded was on June 30, 2017. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry for the account titles and enter for the amounts. Round answers to o decimal places, e.g. 5,275.) Account Titles and Explanation Debit Credit Jan. 2 (To record depreciation expense) Jan, 2 (To record sale of equipment and related loss/gain) Record the journal entry to record items 2 through 7 above. Assume all transactions are cash transactions and occurred on January 2, 2018. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry for the account titles and enter o for the amounts.) Date Account Titles and Explanation Debit Credit Jan. 2 Accounts Payable Accounts Receivable Accumulated Depreciation - Buildings Accumulated Amortization - Copyrights Accumulated Amortization - Development Costs Accumulated Depreciation - Equipment Accumulated Amortization - Franchises Accumulated Depreciation - Furniture Accumulated Amortization - Patents Accumulated Depreciation - Vehicles Advertising Expense Allowance for Doubtful Accounts Amortization Expense Bad Debts Expense Bank Charges Expense Bank Loan Payable Buildings Cash Common Shares Copyrights Cost of Goods Sold Depreciation Expense Development Costs Equipment Franchises Furniture Gain on Disposal Goodwill Impairment Loss Income Tax Expense Interest Expense Interest Payable Interest Receivable Interest Revenue Inventory Land Land Improvements Loss on Disposal Mortgage Payable No Entry Notes Receivable Office Expense Patents Prepaid Insurance Rent Expense Repairs and Maintenance Expense Research Expenses Retained Earnings Salaries Expense Sales Sales Discounts Supplies Trademarks Vehicles Question 37 After meeting with Soft ware Solutions, as described in Chapter 8, Emily was able to negotiate credit terms of 30 days and decided to take on the additional work offered by Software Solutions. In order to better handle this work, ABC decided to upgrade its computer equipment and hire two additional employees. After some research and much discussion, the computer upgrades and costs were determined to be as follows: 1. Old server will be retired and donated to the community centre. It was originally purchased for $5,575 on January 3, 2014. It is being depreciated on a straight-line basis over a five-year useful life with no residual value. 2. Purchase of a new server, including installation, $32,300 3. Purchase of computing equipment for the new employees at a cost of $8,030. 4. Purchase of additional yearly software usage licences for the two new employees at a cost of $1,360 each. 5. Purchase of additional office furniture at a cost of $2.790, plus delivery and shipping costs of $610 6. Additional insurance is required, $980 per year. 7. Rearranging the office space and repainting the office to "freshen things up at a cost of $3,730. Doug, Bev, and Emily anticipate that the cost of the upgrade can be financed with cash the company currently has in the bank. The upgrades will take place between Christmas and New Year's when the sales at the business are a little slower. If all goes smoothly, the new equipment will be installed and ready for use by January 2, 2018 Emily is concerned about how to record these transactions in the accounting records. She is not certain which costs should be capitalized and which should be expensed. Identify which of the above costs should be capitalized and which should be expensed. Total costs to be capitalized $ The should be expensed SHOW UST OF ACCOUNTS Prepare the journal entries to record the retirement of the old server (item 1) on January 2, 2018, for no proceeds. The last time depreciation was recorded was on June 30, 2017. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry for the account titles and enter for the amounts. Round answers to o decimal places, e.g. 5,275.) Account Titles and Explanation Debit Credit Jan. 2 (To record depreciation expense) Jan, 2 (To record sale of equipment and related loss/gain) Record the journal entry to record items 2 through 7 above. Assume all transactions are cash transactions and occurred on January 2, 2018. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry for the account titles and enter o for the amounts.) Date Account Titles and Explanation Debit Credit Jan. 2 Accounts Payable Accounts Receivable Accumulated Depreciation - Buildings Accumulated Amortization - Copyrights Accumulated Amortization - Development Costs Accumulated Depreciation - Equipment Accumulated Amortization - Franchises Accumulated Depreciation - Furniture Accumulated Amortization - Patents Accumulated Depreciation - Vehicles Advertising Expense Allowance for Doubtful Accounts Amortization Expense Bad Debts Expense Bank Charges Expense Bank Loan Payable Buildings Cash Common Shares Copyrights Cost of Goods Sold Depreciation Expense Development Costs Equipment Franchises Furniture Gain on Disposal Goodwill Impairment Loss Income Tax Expense Interest Expense Interest Payable Interest Receivable Interest Revenue Inventory Land Land Improvements Loss on Disposal Mortgage Payable No Entry Notes Receivable Office Expense Patents Prepaid Insurance Rent Expense Repairs and Maintenance Expense Research Expenses Retained Earnings Salaries Expense Sales Sales Discounts Supplies Trademarks Vehicles