Powerhouse Ltd: Financial Accounting - Asset Purchase and Depreciation

This assignment solution details the journal entries for Powerhouse Ltd's asset purchase on January 2, 2015, which involved a cash payment of $240,000 and a $144,000 loan from a finance company. The assets included a building, land, and machinery with equipment. The solution covers the initial purchase, the accrual of interest expense on the loan, depreciation expense for the year 2015 using the straight-line method, and the final payment of the loan on July 2, 2016. Specific entries include the allocation of the purchase price to different assets based on their appraised values, the calculation and recording of annual depreciation for the building, machinery, and office equipment, and the accounting for interest expense and payable related to the finance company loan. The assignment provides a comprehensive example of how to account for asset acquisitions, depreciation, and financing in accordance with accounting principles. Desklib offers a wide range of study tools and solved assignments to support students in their academic endeavors.

nd of Chapter Problem 14.5
On 2 January 2015, Powerhouse Ltd purchased, by exchanging $240,000 cash and a
$144,000, 12%, 18-month finance company loan, assets with the following independently
determined appraised values:
Appraised value
Building $320,000
Land 80,000
Machinery and equipment 100,000
$500,000
The estimated useful life of the building is 30 years and its residual value is $16,000. The
$100,000 machinery and equipment amount consists of three machines independently valued
at $30,000 each and some office equipment valued at $10,000. The estimated useful lives
and residual values for these assets are:
Useful
life Residual value
Machine 1 6 years $3,600
Machine 2 9 years 3,600
Machine 3 4 years 4,800
Office
equipment 5 years 400
Powerhouse Ltd uses the straight-line depreciation method. Ignore GST.
A.
Prepare journal entries (in general journal form) to record the following. (Enter all debit
entries first, followed by all credit entries. Credit account titles are automatically
indented when the amount is entered. Do not indent manually. Round answers to 0
decimal places, e.g. 5,275.)
1. The purchase of the assets.
Powerhouse Ltd
General journal (extract)
Date Particulars Debit Credit
2015
Jan. 2 Building 245760
Land 61440
Machinery 69120
Office equipment 7680

(To record purchase of various assets)
2. The accrual of interest expense on the loan on 31 December 2015.
Powerhouse Ltd
General journal (extract)
Date Particulars Debit Credit
2015
Dec.
31
(To record annual interest. Not a qualifying asset)
3. Depreciation expense for the year 2015.
Powerhouse Ltd
General journal (extract)
Date Particulars Debit Credit
2015
Dec.
31
(To record annual depreciation)
4. The payment of the loan on 2 July 2016.
Powerhouse Ltd
General journal (extract)
Date Particulars Debit Credit
2015
Dec.
31
Cash at bank 240000
Loan from finance company 144000
Interest expense 17280
Interest payable 17280
Depreciation expense 21549
Accumulated depreciation — building 10133
Accumulated depreciation — machinery 9960
Accumulated depreciation — office equipment 1456
Interest expense 8640
Interest payable 17280
Loan from finance company 144000

(To record repayment of loan plus interest)
Cash at bank 169920