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Exercise 8-16 Disposal of assets LO P2 Diaz Company owns a machine that cost $126,800 and has accumulated depreciation of $93,000. Prepare the entry to record the disposal of the machine on January 1 in each seperate situation. 1. The machine needed extensive repairs and was not worth repairing. Diaz disposed of the machine, receiving nothing in return. 2 Diaz sold the machine for $17,500 cash. 3. Diaz sold the machine for $33,800 cash. 4. Diaz sold the machine for $41,800 cash. X Answer is not complete. No Date General Journal Debit Credit 1. Jan 01 Accumulated depreciation-Machine 93,000 O 21 Jan 01 Cash 17,500 Accumulated depreciation-Machine 93,000 Loss on sale of machine 16,300 Machine 126,800 3 Jan 01 Cash 33,800 O Accumulated depreciation-Machine 93,000 O 4. Jan 01 Machine 126,800 X

Corporate Financial Accounting

Corporate Financial Accounting

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ISBN:9781305653535

Author:Carl Warren, James M. Reeve, Jonathan Duchac

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Chapter9: Long-term Assets: Fixed And Intangible

Section: Chapter Questions

Problem 9.5APR

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Exerclse 8-16 Disposal of assets LO P2
Diaz Company owns a machine that cost $126,800 and has accumulated depreciation of $93,000. Prepare the entry to record the
disposal of the machine on January 1 in each seperate situation.
1. The machine needed extensive repairs and was not worth repairing. Diaz disposed of the machine, receiving nothing in return.
2 Diaz sold the machine for $17,500 cash.
3. Diaz sold the machine for $33,800 cash.
4. Diaz sold the machine for $41,800 cash.
X Answer is not complete.
No
Date
General Journal
Debit
Credit
Jan 01
Accumulated depreciation-Machine
93,000 O
Jan 01
Cash
17,500
Accumulated depreciation-Machine
93.000
Loss on sale of machine
16,300
Machine
126.800 O
3
Jan 01
Cash
33,800 O
Accumulated depreciation-Machine
93.000
4
Jan 01
Machine
126,800 X

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Effect of depreciation on net income Tuttle Construction Co. specializes in building replicas of historic houses. Tim Newman, president of Tuttle Construction, is considering the purchase of various items of equipment on July 1, 2014, for 400,000. The equipment would have a useful life of five years and no residual value. In the past, all equipment has been leased. For tax purposes, Tim is considering depreciating the equipment, by the straight-line method. He discussed the matter with his CPA and learned that, although the straight-line method could be elected, it was to his advantage to use the Modified Accelerated Cost Recovery System (MACKS) for tax purposes, lie asked for your advice as to which method to use for tax purposes. 1. Compute depreciation for each of the years (2014, 2015, 2016, 2017, 2018, and 2019) of useful life by (a) the straight-line method and (b) MACRS. In using the straight-line method, one-half year's depreciation should be computed for 2014 and 2019.Use the MACRS rates presented in Exhibit 9. 2. Assuming that income before depreciation and income tax is estimated to be 750,000 uniformly per year and that the income tax rate is 40%, compute the net income for each of the years 2014, 2015, 2016, 2017, 2018, and 2019 if (a) the straight-line method is used and (b) MACRS is used. 3. What factors would you present for Tim's consideration in the selection of a depreciation method?
Allocating payments and receipts to fixed asset accounts The following payments and receipts are related to land, land improvements, and buildings acquired for use in a wholesale apparel business. The receipts are identified by an asterisk. a. Fee paid to attorney for title search 3,600 b. Cost of real estate acquired as a plant site: Land 720,000 Building (to be demolished) 60,000 c. Finders fee paid to real estate agency 23,400 d. Delinquent real estate taxes on property, assumed by purchaser 15,000 e. Architects and engineers fees for plans for new building 75,000 f. Cost of removing building purchased with land in (b) 10,000 g. Proceeds from sale of salvage materials from old building 3,400 h. Cost of filling and grading land 18,000 i. Premium on one-year insurance policy during construction. 8,400 j. Money borrowed to pay building contractor 800,000 k. Special assessment paid to city for extension of water main to the property 13,400 1. Cost of repairing windstorm damage during construction 3,000 m. Cost of repairing vandalism damage during construction 2,000 n. Cost of trees and shrubbery planted 14,000 o. Cost of paving parking lot to be used by customers 21,600 p. Interest incurred on building loan during construction 40,000 q. Proceeds from insurance company for windstorm and vandalism damage 4,500 r. Payment to building contractor for new building 800,000 s. Refund of premium on insurance policy (i) canceled after 10 months 1,400 Instructions 1.Assign each payment and receipt to Land (unlimited life), Land Improvements (limited life), Building, or Other Accounts. Indicate receipts by an asterisk. Identify each item by letter and list the amounts in columnar form, as follows: Item Land Land Improvements Building Other Accounts 2.Determine the amount debited to Land, Land Improvements, and Building. 3.The costs assigned to the land, which is used as a plant site, will not be depreciated, while the costs assigned to land improvements will be depreciated. Explain this seemingly contradictory application of the concept of depreciation. 4.What would be the effect on the current years income statement and balance sheet if the cost o f paving the parking lot o f 21,600 [payment (o)] was incorrectly classified as Land rather than Land Improvements? Assume that Land Improvements are depreciated over a 10-year life using the double-declining-balance method.

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