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For the past eight years, Graham had offered tours from his hot air balloon, which he had
purchased for $120,000 when he opened his business. There was now $68,344 of
accumulated depreciation. The hot air balloon had an estimated useful life of 10 years and a
residual value of $15,000, and it was depreciated using the declining-balance method.
Graham had enjoyed the balloon rides as part of his retirement activities, but he had also
been working on obtaining a helicopter pilot’s licence. He had noticed that helicopter rides,
in general, were more popular, and he thought the heated cabin in the helicopter would
contribute to more stable sales year-round. For this reason, on February 2, 2012, he traded
in his hot air balloon towards the purchase of a helicopter.
HELICOPTER
The cost of a used helicopter was still significantly more than that of the hot air balloon.
Jeff Meyers, a retiring contract delivery provider for a mining operation, agreed to sell his
helicopter to Graham for a price of $840,000 in exchange for the hot air balloon and
$800,000 cash. The helicopter had 2,000 flight hours of life remaining and no residual value.
Graham used the helicopter for 40 hours during the remainder of the year.
STORAGE FACILITY
On September 1, 2011, Graham negotiated to purchase the storage facility he had been
renting previously for $86,000 cash. The facility would be depreciated using the straight-
line method and had an expected useful life of 20 years, with an estimated residual value of
$25,200. At the end of fiscal 2012, the building had an appraisal value of $78,600.
BUS
Graham had also purchased a used bus to transport people from Owen Sound to the air
strip, since the Niagara Escarpment was a popular vacation spot for Owen Sound residents.
The bus was purchased for $70,000 on September 1, 2008, and had an estimated residual
value of $5,000 and a useful life of four years. At the beginning of the fiscal year, the bus
had accumulated depreciation of $61,250. Graham used the double-diminishing-balance
method to depreciate the bus.
He paid the designer $500 per month to work on the project, starting January 5, 2012. On
July 3, 2012, Graham received a call from the designer saying that he had solved the
majority of the preliminary research problems and the two decided to start development.
They determined that these costs met the criteria for development. The part-time designer
estimated that development would not be completed until sometime next fiscal year.
Required:
As Macarthur Graham, working asset by asset, post all required transactions for the
financial year ending August 31, 2012.