Question 1 3 Marks
On September 5, 2017, Nelson Lumber purchased timber rights in Northern Quebec for $432,000, paying $96,000 cash and the balance by issuing a non-current note. Logging the area is expected to take three years, and the timber rights will have no value after that time. On September 27, 2017, Nelson Lumber purchased a patent for new logging equipment for $148,000 on account. It is expected that the patent will be technologically obsolete in 10 years. Nelson's year-end is December 31, and it uses the straight-line method to amortize intangibles.
1. Record the acquisition of the timber rights and the patent.
2. Record amortization on the timber rights and the patent at December 31, 2017, and December 31, 2018.
Question 2 3 Marks
West Coast Tours runs boat tours along the West Coast of British Columbia. On March 5, 2017, it purchased a cruising boat for $828,000 in cash, having a useful life of 10 years or 13,250 hours, with a residual value of $192,000. The company's year-end is December 31. Calculate depreciation expense for the fiscal years 2017, 2018, and 2019 by completing a schedule with the following headings (round to the nearest whole dollar): Depreciation Method, Year, Straight-Line, Double-Declining Balance, Units-of-Production.
Depreciation is calculated to the nearest month. Assume actual hours of service were: 2017 - 720 hours, 2018 - 1,780 hours, 2019 - 1,535 hours.
Question 3 3 Marks
Vita Water purchased a used machine for $116,900 on January 2, 2017. It was repaired the next day at a cost of $4,788 and installed on a new platform that cost $1,512. The company predicted that the machine would be used for six years and would then have a $20,720 residual value. Depreciation was to be charged on a straight-line basis to the nearest whole month. A full year's depreciation was recorded on December 31, 2017. On September 30, 2022, it was retired.
1. Prepare journal entries to record the purchase of the machine, the cost of repairing it, and the installation. Assume that cash was paid.
2. Prepare entries to record depreciation on the machine on December 31, 2017 (its first year) and on September 30, 2022 (in the year of its disposal, round calculations to the nearest whole dollar), when it is sold for $21,000.
