4) Daniel Manufacturing Limited (DML) purchased a large lathe. The

Question : 4) Daniel Manufacturing Limited (DML) purchased a large lathe. The : 1888833

4) Daniel Manufacturing Limited (DML) purchased a large lathe. The invoice cost of the lathe was $6,200,000 but DML was able to get the price reduced to $5,800,000. The seller provided terms whereby if the entire amount was paid within 30 days a further discount of 3% was available. DML paid on the 25th day. Transportation of the machine cost DML $70,000. Insurance while in transit was $30,000. To encourage DML to purchase another machine, the manufacturer gave DML a $50,000 discount voucher on its next purchase of a similar machine. Workers were paid $45,000 to install the machine. Start-up and testing costs were $45,000. Unfortunately, during the installation, one of the workers accidentally damaged the machine, and it cost $15,000 to repair the damage. Non-refundable sales taxes paid were $700,000, however, later a sales tax rebate of $80,000 was received relating to this transaction. During installation, part of the plant had to be shut down; lost profit from the shutdown was $100,000.


For each expenditure, identify whether it should be included in the cost of the lathe or expensed. Briefly justify each of your responses.

5) Zach Co. Ltd. was incorporated on January 2, 2012, but was unable to begin their manufacturing operations immediately. The new factory facilities became available for use on July 1, 2012. During the start-up period, the company provisionally used a "Land and Factory Building" account to record the following transactions, in chronological order:

Jan 31

Purchase of land and building


Feb 19

Cost of removing existing building


Mar 15

Proceeds from sale of scrap material from demolition


Mar 15

Partial payment on new construction


Mar 15

Legal fees paid (see note (i) below)


Apr 1

Second payment on new construction


Jun 3

Insurance premium (ii)


Jun 20

Special tax assessment (iii)


Jul 3

General expenses (iv)


Dec 31

Final payment on new construction


Dec 31

Asset write-up (v)




Dec 31

Less depreciation for 2012 (vi)


Account Balance


Additional info


i. Legal fees of $3,200 covered the following:

Cost of incorporating the company

$ 600

Examination of title covering purchase of land


Legal work in connection with construction contract


ii. Insurance covered the building for a one-year term beginning Apri1 1, 2012.

iii. The special tax assessment covered repaving the street in front of the building.

iv. General expenses covered the following for the period January 2, 2012 to June 30, 2012.

President's salary


Plant superintendent covering supervision of new building


v. The board of directors increased the value of the building by $23,000, believing that such an increase was justified to reflect the current market at the time the building was completed; Retained Earnings was credited for this amount.

vi. Engineers estimate the useful life of the building to be 40 years. The company believes that the declining balance method at a 5% rate is appropriate. The company's policy for new PPE is to depreciate the assets according to the time available for use in the fiscal year, rounded to the closest month.



Prepare entries to reflect correct land, factory building, and accumulated depreciation accounts at December 31, 2012. Round values to the nearest dollar, if necessary.

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Accounting 1 Year Ago 58 Views
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