Page 470 - Accounting Principles (A Business Perspective)

This book is licensed under a Creative Commons Attribution 3.0 License

Demonstration problem C On 2010 January 2, Bedford Company purchased a 10-year sublease on a
warehouse for USD 30,000. Bedford will also pay annual rent of USD 6,000. Bedford immediately incurred costs of
USD 20,000 for improvements to the warehouse, such as lighting fixtures, replacement of a ceiling, heating system,

and loading dock. The improvements have an estimated life of 12 years and no residual value.
Prepare the entries to record:
a. The payment for the sublease on a warehouse.
b. The rent payment for the first year.
c. The payment for the improvements.
d. Amortization of the leasehold for the first year.
e. Amortization of the leasehold improvements for the first year.

Solution to demonstration problem
Solution to demonstration problem A
DARTON COMPANY
a. Schedule to Compute Book Value
2010 July 1
Cost $ 36,000
Less accumulated depreciation:
($35,000 - $1,800)/6 years= $5,700 per year 19,950
$5,700 X 31 1/2 years = $19,950 $ 16,050
Book value
b. (1) Cash (+A) 12,000
Accumulated Depreciation—Machinery (+A) 19,950
Loss from Disposal of Plant Assets (-SE) 4,050 36,000
Machinery (-A)
To record the sale of machinery at loss.
(2) Cash (+A) 18,000
Accumulated Depreciation—Machinery (+A) 19,950 36,000
Machinery (-A) 1,950
Gain on Disposal of Plant Assets (+SE)
To record sale of machinery at a gain.

Accounting Principles: A Business Perspective 471 A Global Text