Locke Manufacturing began Operations on October 1 2016. The following fixed assets have been acquired over the years. The below cost and related expenditure were identified: • Land was acquired at the start of operations in order to construct a small office building. The company paid $80,000 in cash. An old warehouse on the property was razed at a cost of $9,400; the salvaged materials were sold for $1,700. Additional expenditures before construction began included $1,100 attorney’s fee for work concerning the land purchase, $5,000 real estate broker’s fee, architect’s fee was estimated as $20,000, and $12,700 to put in driveways, fencing and a parking lot.
• Building construction commenced on November 30, 2016 with a payment of $260,000 to the contractor. Locke paid excavation cost of $3,000, architect’s fee at $22,500 and $11,000 for the building drawing plans which was required in order to get the building permit. The building permit was $3,500.
• Equipment was acquired on January 1, 2018, at a cost of $92,000. Sales tax amounted to $11,500 and freight charges of $7,500 were incurred. The company also purchased a 1-year insurance policy for 2020 costing $15,000 and paid $5,000 in maintenance over the year. The equipment has an estimated life of 5 years or a useful life is 124,000 units and an estimated salvage value of $9,000.
Required:
a) Compute the cost of each asset identified above.
b) Prepare the depreciation schedule to record the annual depreciation for the Equipment from
2018 to 2020 under the following assumptions:
i. Straight-line method of depreciation
ii. Declining balance method using twice the straight-line rate.
iii. Units of Activity method. The actual usage was as follows: 2018 – 30,000 units;
2019 – 27,000 units; 2020 – 21,000 units and at 31 October 2021 – 14,000.
c) On October 31, 2021, Locke decides to sell the Equipment for $24,000. Compute the Gain or
Loss on Disposal under each depreciation method used from part b to determine the most “profitable” sale.