Chapter Ten Maria Fonseca Challenge Exercise 10-1 Expands on: E10-2 LO: 1 Fluffier Company incurred the following costs.

1. Sales tax on factory machinery purchased, $7,000.

2. Painting of and lettering on truck immediately upon purchase, $800

3. Installation and testing of factory machinery, $2,500.

4. Real estate broker’s commission on land purchased $4,500.

5. Insurance premium paid for first year’s insurance on new truck $930.

6. Cost of landscaping on property purchased $9,200

7. Cost of paving parking lot for new building, $18,700.

8. Cost of clearing, draining, and filling land, $14,400.

9. Architect’s fees on self-constructed building, $11,000.

Instructions:

a) Indicate to which account Trudy would debit each of the costs.

b) Explain why item 1 is not debited to an expense account.

c) Explain why items 7 and 8 are debited to different accounts.

Fluffier company creadit

Debit

$18700 cost paving new $18,700

$2,500 testing factory machinery

$ 930 $7,000 sale tax machinery purchase

$800painting and lethe.

$14,400 cost clearing draining and filling land

$4,500 c land purch

$9,200 landscaping property perched

total amount

Challenge Exercise 10-2 Expands on: E10-11 LO:

3 Grace Company owns equipment that cost $70,000 when purchased on January 1, 2017. It has been depreciated using the straight-line method based on estimated salvage value of $7,000 and an estimated useful life of 5 years.

Instructions:

Prepare Grace Company’s journal entries to record the sale of the equipment in these four independent situations. Update depreciation on assets disposed of at time of sale.

(a) Sold for $40,000 on January 1, 2017.

(b) Sold for $40,000 on April 1, 2017.

(c) Sold for $15,000 on January 1, 2017

. (d) Sold for $15,000 on September 1, 2017.

(e) Repeat (a), assuming Grace Uses double-declining balance depreciation. (e) Repeat (c), assuming Grace uses double-declining balance depreciation.

Grace Company Journal

Date January 1, 2017

Account /explanations Debit credit

Supplies $ 70,000 $70,000 $70,000

Sold $ 40,000

April 1, 1 2017 sold $ 40, 00 0 $40,000

January 1, 2017 sold $15,000

September 1, 2017 sold $ 15,000