during 2007 jule s gym had some trouble with its information processing due to sever 538686

Analyze and correct accounting errors related to long-term assets. (L0 9)

During 2007, Jule’s Gym had some trouble with its information processing due to several hurricanes, and some effors were made in accounting for certain transactions. The firm uses straight-line depreciation for a1lo f its long-term assets. Evaluate the following independent situations that occurred during the year:

a. At the beginning of the year, a basket purchase of a building and land was made for $350,000. The appraisers indicated that the market value of the land was $135,000 and the market value of the building was $250,000. So, Jule’s Gym allocated $135,000 of the purchase price to the land and the remainder of the purchase price to the building. The building has an estimated useful life of 20 years and an estimated salvage value of $25,000.

b. The plumber spent a great deal of time repairing broken toilets in one of the gym’s buildings this year. Total cost, which Jule’s Gym capitalize do was $5,000.

Jule’s Gym decided it was best to leave it on the books as an asset and not write it off, because the toilets will be used for quite a few more years. (Use 20 years as the estimated remaining useful life of the toilets.)

c. Jule’s Gym purchased a new van. It cost $20,000 and is expected to last 3 years.

It has a salvage value of $2,000. To properly equip it for transporting gym equipment between locations, the inside was customized at a cost of $6,000. The cost of the van was capitalized, and the cost of the customization was expensed.

d. Jule’s Gym spent $5,500 on routine maintenance of its exercise equipment. The cost was expensed.

Required

a. For each, describe the error made and list the effect, if any, that the uncorrected error would have on the following items for Jule’s Gym’s 200’7 financial statements: net income, long-term assets, and retained earnings. If there is no error, simply write N/A next to the item.

b. Use the accounting equation to show the adjustments that would correct the company’s accounting records and make the 2001 financial statements accurate.