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Correcting Noncurrent Operating Asset Valuation On December 31 2008 Lakeside Co shows the following account for machinery it had assembled for its own use during 2008 Account MACHINERY

Correcting Noncurrent Operating Asset Valuation

On December 31, 2008, Lakeside Co. shows the following account for machinery it had assembled for its own use during 2008:

Account: MACHINERY (Job Order #1329)

Item

Debit

Credit

Balance

Debit

Credit

Cost of dismantling old machine

14,480

 

14,480

 

Cash proceeds from sale of old machine

 

12,000

2,480

 

Raw materials used in construction

 

 

 

 

of new machine

76,000

 

78,480

 

Labor in construction of new machine

49,000

 

127,480

 

Cost of installation

11,200

 

138,680

 

Materials spoiled in machine trial runs

2,400

 

141,080

 

Profit on construction

24,000

 

165,080

 

Purchase of machine tools

 

 

 

 

An analysis of the details in the account disclosed the following:

(a) The old machine, which was removed before the installation of the new one, had been fully depreciated.

(b) Cash discounts received on the payments for materials used in construction totaled $3,000, and these were reported in the purchase discounts account.

(c) The factory overhead account shows a balance of $292,000 for the year ended December

31, 2008; this balance exceeds normal overhead on regular plant activities by approximately

$16,900 and is attributable to machine construction.

(d) A profit was recognized on construction for the difference between costs incurred and the price at which the machine could have been purchased.

Instructions:

1. Determine the machinery and machine tools balances as of December 31, 2008.

2. Give individual journal entries necessary to correct the accounts as of December 31, 2008, assuming that the nominal accounts are still open.

Jun 17 2020 View more View Less

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