Gray & Greene<\/strong><\/p>\n Gray & Greene Company is a relatively small private company with annual sales of $25,000,000, on a total asset base of $18,000,000.\u00a0 The company manufactures specialized parts for larger corporations in the automobile, energy, and home products industries.\u00a0 For instance, the company produces the control switch for automobile power seats, a fuel gage monitor for gasoline pumps, and a thermostat switch for appliances such as refrigerators and air conditioners.\u00a0 The company employs about 80 people and generally runs two and sometimes three production shifts five days a week.\u00a0 A maintenance crew works on Saturdays to keep machines in working order.<\/p>\n <\/p>\n Mike Gray the company CEO is a second-generation owner of the company.\u00a0 He took over as head of the company after his father retired in 19×5.\u00a0 Mike is a firm believer in specialty work.\u00a0 Since his company specializes and has expertise in certain types of products, Mike feels they should contract out to specialists for other areas of need.\u00a0 The company does not have a finance officer or personnel officer.\u00a0 Mike hired a personnel agency for all hiring and pension programs, and an accounting firm to maintain accounting records.\u00a0 Mike and Bob Greene, the COO, still have final authority and decision making power over the major personnel and accounting related activities and have worked well in this relationship for a number of years.\u00a0 By leaving much of this administrative type work to specialized agencies, Mike and Bob have been able to concentrate their efforts into product development and production of their unique products.<\/p>\n <\/p>\n Customers have been very pleased with the quality of the product produced by Gray & Greene as well as the reliability of delivery and performance.\u00a0 There products have always been very cost competitive, and the company never lacks for business.<\/p>\n <\/p>\n Mike has an administrative assistant, Gloria Wong, who oversees the accounting activities and works as an intermediary between the accounting service and Gray & Greene.\u00a0 Gloria keeps track of regular activities such as employee hours, and supply usage and sends required information and forms to the accounting service.\u00a0 The accounting service regularly transfers the information into various accounting reports.\u00a0 At the end of the year, the accounting service does a detailed analysis of the company operation and performance and develops the annual financial statements.<\/p>\n <\/p>\n Kevin Butler, a newly hired MBA for Bean Counters Accounting Service, will be assisting on his first annual review of the Gray & Greene annual financial statements.\u00a0 Specifically, he has been given the responsibility to reconstruct and develop the records for the company\u2019s long-term assets.<\/p>\n <\/p>\n During the year, Mike Gray had performed several activities related to Gray & Greene in the area of long-term assets.\u00a0 Recent technology had made some of the machines used in the manufacturing process obsolete.\u00a0 New machines were purchased.\u00a0 There was also some selling, disposing, and trading of older machines as products changed and new customers wanted new designs and processes.\u00a0 Mike had saved all the records related to fixed asset transactions and asked Gloria to relate this information to Kevin.\u00a0 Kevin was responsible for insuring that these activities were properly reported for accounting purposes and incorporated into the financial statements for the 20×7 calendar year.<\/p>\n <\/p>\n (1)\u00a0 <\/strong>Kevin and Gloria got together with the documentation and began to review the long-term asset activities.\u00a0 On January 15, 20×7, the company disposed of a stamping machine.\u00a0 The machine was originally purchased on January 15, 20×0 for $84,000.\u00a0 The machine was estimated to have a useful life of 10 years with a zero salvage value.\u00a0 (Note: Gray & Greene use a straight-line method of depreciation for all long-term assets unless otherwise noted.)\u00a0 No effort was made to sell or trade the machine because the machine was broken beyond repair.\u00a0 $100 was also paid to a salvage company to disassemble and remove the machine from the plant.<\/p>\n <\/p>\n (2)\u00a0 <\/strong>The next activity occurred on February 1, 20×7.\u00a0 A molding machine was purchased for $247,000.\u00a0 The machine cost an additional $10,000 to have it shipped to the plant.\u00a0 Once on location, the company had $5,000 in installation and operating costs before the machine was ready to begin full operation.\u00a0 Two employees went to a one-day training school to learn how to operate the new machine at a cost of $1,400.\u00a0 The molding machine has an 8-year useful life and a salvage value of $22,000.\u00a0\u00a0 The company paid cash for the shipping, installation, and training charges plus $25,000 for the machine.\u00a0 The balance due on the machine was set up with a note payable.<\/p>\n <\/p>\n (3)\u00a0 <\/strong>On March 1, 20×7, a cutting machine was traded in for a similar new computerized cutting machine.\u00a0 The old machine, which originally cost $130,000, had been at the company since January 1, 20×1 and had 1 year and 10 months of useful life remaining.\u00a0 The salvage value of the old machine was estimated at $10,000, but the company received $36,000 as a trade in value.\u00a0 The new machine cost $280,000, which included delivery and installation.\u00a0 The new machine has an expected life of 10 years at which time it could probably be sold for $40,000.\u00a0 The company made a down payment of $20,000 and signed a five year note payable for the balance due.<\/p>\n <\/p>\n (4)\u00a0 <\/strong>April 1, 20×7 a pressing machine was sold for $71,000.\u00a0 It originally cost $185,000 and had a book value on December 31, 20×6 of $72,500.\u00a0 The annual depreciation for this machine was $18,000.\u00a0 The machine was expected to have a $5,000 salvage value in about four years.<\/p>\n <\/p>\n (5)\u00a0 <\/strong>To celebrate April 15, 20×7, the company acquired a new utility van, which would be used to pick up and deliver parts to customers and suppliers in the immediate vicinity.\u00a0 The van has a sticker price of $37,595, but the company was able to secure the vehicle for $35,000.\u00a0 The van will probably have a useful life of 5 years with a book value of $5,000 at the end of that time.\u00a0 The company paid $7,000 and signed a 3 year note for the balance due.<\/p>\n <\/p>\n (6)\u00a0 <\/strong>On May 1, 20×7 an old pressing machine was traded in for a new computerized processing machine.\u00a0 These machines were used on different production lines and considered as dissimilar equipment.\u00a0 The old pressing machine cost $157,000 when it was purchased on May 1, 20×3 and had a useful life of 8 years with a salvage value of $13,000.\u00a0 A $90,000 trade-in allowance was given for the pressing machine.\u00a0 The new processing machine had a list price of $350,000, but only cost the company $260,000 after the trade-in.\u00a0 The new machine had a nine-year useful life with a $26,000 salvage value.\u00a0 The company paid $52,000 down and signed a note payable for the balance due.<\/p>\n <\/p>\n (7)\u00a0 <\/strong>August 1, 20×7 the company had to complete a major overhaul on an assembly machine.\u00a0 The machine had been purchased for $430,000 on August 1, 20×2.\u00a0 The machine was expected to last for 12 years with a $70,000 salvage value.\u00a0 If the repairs had not been completed, the machine would not function efficiently in the company and would have to be disposed for its parts, which would have brought the company about $30,000.\u00a0 The cost of the repairs was $33,000, but the overhaul was expected to add 2 years onto the remaining life of the machine.\u00a0 The repairs were paid for in cash.<\/p>\n <\/p>\n (8)\u00a0 <\/strong>On September 1, 20×7 the company traded in a sorting machine which had cost $135,000 when purchased on March 1, 20×0 for a similar new sorting machine with a purchase price of $210,000.\u00a0 The old machine had a ten-year useful life with a $15,000 salvage value.\u00a0 Gray & Greene received $52,000 as a trade-in value on the old machine.\u00a0 The new sorting machine is expected to have an eight-year life with an $11,000 salvage value.\u00a0 The company paid $40,000 in cash and signed a 3-year note for the balance due.<\/p>\n <\/p>\n (9)\u00a0 <\/strong>A spray machine was purchased on October 1, 20×7.\u00a0 The cost of the machine was $165,000.\u00a0 The terms of the agreement were fob destination and the shipping costs were $3,000.\u00a0 The area of the building in which this machine was located had to be specially ventilated and partitioned to control fumes and dust.\u00a0 The cost of the building refurbishing was $35,000.\u00a0 The company used their own maintenance employees to complete the job as part of their regular work schedule, and their cost of the refurbishing was an additional $12,000.\u00a0 The machine had an eight-year life with a salvage value of $20,000.\u00a0 The company paid cash to have the building refurbished, signed a note for $125,000 and paid cash for the balance due on the machine.<\/p>\n <\/p>\n (10)\u00a0 <\/strong>On November 1, 20×7 a molding machine needed a replacement part.\u00a0 The cost of the part was $8,400, which the company paid for in cash.\u00a0 The purchase price of the machine on November 1, 20×6 was $232,000 and it had an eight-year useful life with a $40,000 salvage value.\u00a0 This part was not expected to increase the useful life of the machine.\u00a0 This part typically breaks down after four years, so the fact that it only lasted one year was a concern.\u00a0 The company can expect to replace this part again in four years or less.<\/p>\n \u00a0<\/strong><\/p>\n Required:<\/strong><\/p>\n <\/p>\n Complete all required journal entries for each of the long-term activities, which took place during 20×7.\u00a0 Remember to account for the appropriate depreciation expense for the year on any of the long-term assets.\u00a0 (The activities are numbered in bold to make it easier to follow.)<\/p>\n <\/p>\n \u00a0<\/strong><\/p>\n \u00a0<\/strong><\/p>\n","protected":false},"excerpt":{"rendered":" Accounting Journal Entries Gray & Greene Gray & Greene Company is a relatively small private company with annual sales of $25,000,000, on a total asset base of $18,000,000.\u00a0 The company manufactures specialized parts for larger corporations in the automobile, energy, Read More 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