Property, Plant, and Equipment:
Property, Plant, and Equipment refers to the fixed assets, having a useful life of more than a year that is acquired by a company to be used in its business activities, for generating revenue.
To Prepare: The
Explanation of Solution
1.
Prepare the journal entry to record the purchase of equipment on account:
Date | Account Title and Explanation | Post Ref. |
Debit ($) |
Credit ($) |
Equipment | 24,500 | |||
Accounts payable | 24,500 | |||
(To record the exchange on the books of R Company.) |
Table (1)
Working Note:
- Equipment is an asset account, and it is increased. Hence, debit the equipment account with $24,500.
- Accounts payable is a liability account, and it is increased. Hence, credit the accounts payable account with $24,500.
2.
Prepare the journal entry to record the purchase of equipment in exchange with a note:
Date | Account Title and Explanation | Post Ref. |
Debit ($) |
Credit ($) |
Equipment | 24,545 | |||
Discount on note payable
|
2,455 | |||
Note payable | 27,000 | |||
(To record the exchange on the books of R Company.) |
Table (2)
Working Note:
Calculate the cost of equipment.
Note: PV factor (Present value of $1: n = 1, i = 10%) is taken from the table value (Table 2 in Appendix from textbook).
- Equipment is an asset account, and it is increased. Hence, debit the equipment account with $24,545.
- Discount on note payable is a contra liability account, and it is increased. Hence, debit the discount on note payable account with $2,455.
- Note payable is a liability account, and it is increased. Hence, credit the accounts payable account with $27,000.
3.
Prepare journal entry to record the exchange of old equipment for new equipment.
Date | Account Title and Explanation | Post Ref. |
Debit ($) |
Credit ($) |
New Equipment | 24,500 | |||
8,000 | ||||
Loss | 3,500 | |||
Cash | 22,000 | |||
Old Equipment | 14,000 | |||
(To record the exchange of old equipment for new equipment.) |
Table (3)
- New equipment increases the asset account. Hence, debit New Equipment account with $24,500.
- Accumulated depreciation – old asset is a contra asset. It increases the value of asset account. Therefore, debit Accumulated Depreciation with $8,000.
- Loss on sale of exchange of assets decreases the equity by $3,500. Hence, debit Loss on sale of exchange of assets with $3,500.
- Cash is an asset account and decreased. Therefore, credit Cash account with $22,000.
- Old Equipment is an asset account and decreased. Therefore, credit Old Equipment account with $14,000.
Working note:
Determine the value of new equipment.
Determine the loss on exchange of assets.
4.
Prepare the journal entry to record the purchase of equipment by issuing common stock:
Date | Account Title and Explanation | Post Ref. |
Debit ($) |
Credit ($) |
Equipment | 24,000 | |||
Common stock | 24,000 | |||
(To record the exchange on the books of R Company) |
Table (4)
- Equipment is an asset account, and it is increased. Hence, debit the equipment account with $24,000.
- Common stock is a component of equity account, and it is increased. Hence, credit the common stock account with $24,000
Want to see more full solutions like this?
Chapter 10 Solutions
INTERMEDIATE ACCT.(LL) >CUSTOM PKG.<
- H 10 Acquisition Cost On January 1, 2017, Zircon Enterprises purchased a piece of equipment with a list price of $60,000. The following amounts were related to the equipment purchase: Terms of the purchase were 2/10, net 30. Zircon paid for the purchase on January 8. Freight costs of $1,000 were incurred. A state agency required that a pollution control device be installed on the equipment at a cost of $2,500. During installation, the equipment was damaged and repair costs of $4,000 were incurred. Architect's fees of $4,800 were paid to redesign the work space to accommodate the new equipment. Zircon purchased liability insurance to cover possible damage to the asset. The three-year policy cost $8,000. Zircon financed the purchase with a bank loan. Interest of $3,000 was paid on the loan during 2016. Required: Determine the acquisition cost of the equipment.arrow_forwardProblem 10-9 (Algo) Interest capitalization; specific interest method [LO10-7]On January 1, 2021, the Mason Manufacturing Company began construction of a building to be used as its office headquarters. The building was completed on September 30, 2022. Expenditures on the project were as follows:January 1, 2021$1,280,000March 1, 2021720,000June 30, 2021920,000October 1, 2021720,000January 31, 2022288,000April 30, 2022621,000August 31, 2022918,000 On January 1, 2021, the company obtained a $3,200,000 construction loan with a 15% interest rate. The loan was outstanding all of 2021 and 2022. The company’s other interest-bearing debt included two long-term notes of $3,000,000 and $7,000,000 with interest rates of 11% and 13%, respectively. Both notes were outstanding during all of 2021 and 2022. Interest is paid annually on all debt. The company’s fiscal year-end is December 31. Required:1. Calculate the amount of interest that Mason should capitalize in 2021 and 2022 using the specific…arrow_forwardP10.5 (LO 2, 3, 5), AP At December 31, 2022, Grand Company reported the following as plant assets. Land $4,000,000Buildings $28,500,000 Less: Accumulated depreciation—buildings 12,100,000 16,400,000Equipment 48,000,000 Less: Accumulated depreciation—equipment 5,000,000 43,000,000Total plant assets $63,400,000During 2023, the following selected cash transactions occurred. April 1 Purchased land for $2,130,000.May 1 Sold equipment that cost $750,000 when purchased on January 1, 2019. The equipment was sold for $450,000.June 1 Sold land purchased on June 1, 2013 for $1,500,000. The land cost $400,000.July 1 Purchased equipment for $2,500,000.Dec. 31 Retired equipment that cost $500,000 when purchased on December 31, 2013.arrow_forward
- 20 If net assets in fair value for company B is 450000 JD, what price should company A pay to achieve bargain gain of 25000 JD. Select one: a. 430000 b. 435000 c. 425000 d. 420000arrow_forwardPls all 3 28. Conicelli Toyota sells a truck for $55,000. The truck had an acquisition cost of $150,000 and accumulated depreciation at the time of the sale of $85,000. Which of the following statements are true? a) Conicelli will report a $10,000 gain as a result of this sale. b) Conicelli's loss on this sale is $55,000. c) Total assets increased by $10,000 as a result of this transaction. d) Equity decreased by $10,000 as a result of this transaction. 31. KAW Products purchased a machine for $150,000 on January 1, 2016. The company intends to depreciate it over 5 years using the double-declining balance method. Residual value is $15,000, and KAW uses the mid-month convention. What is depreciation for 2017? Group of answer choices a) $36,000 b) $30,000 c) $27,000 d) $60,000 32. Using the information from the last question, what adjusting journal entry could KAW make at the end of 2020, the final year of the machine's estimated useful life. Group of answer choices Debit Depreciation…arrow_forwardQ10.4 Sheffield Corp. purchased equipment for $50400. Sales tax on the purchase was $3024. Other costs incurred were freight charges of $756, repairs of $441 for damage during installation, and installation costs of $839. What is the cost of the equipment? $53424 $50400 $55019 $55460arrow_forward
- Problem 7-51 (LO 7-5) Kwan acquired a warehouse for business purposes on August 30, 2002. The building cost $420,000. Kwan took $227,600 of depreciation on the building, and then sold it for $500,000 on July 1, 2021. Required: What is the adjusted basis for the warehouse? What amount of the gain or loss is realized on the sale of the warehouse? What amount of the gain or loss is unrecaptured? At what rate is the unrecaptured gain or loss taxed? What amount of the gain or loss qualifies as a § 1231 gain or loss?arrow_forwardQS 8-12 (Algo) Disposal of assets LO P2 Garcia Company owns equipment that cost $84,400, with accumulated depreciation of $44,600. Record the sale of the equipment under the following three separate cases assuming Garcia sells the equipment for (1) $52,700 cash, (2) $39,800 cash, and (3) $34,700 cash.arrow_forwardblock d/2019/3 DD GmbH produces and sells drones. With a machine that is depreciated annually in the amount of € 344 thousand, you have produced a total of 564 multi-purpose drones in t1, of which 82 drones were still in use on 31.12. t1 are in stock. What significance does the previously made statement have with regard to the determination of the commercial production costs of the production costs of the goods made on 31.12. t1 drones in stock?arrow_forward
- Problem 8-18Section 1231 Gains and Losses, Depreciation Recapture (LO 8.7, 8.8) William sold Section 1245 property for $28,000 in 2021. The property cost $41,000 when it was purchased 5 years ago. The depreciation claimed on the property was $20,000. If an amount is zero, enter "0". Question Content Area a. Calculate the adjusted basis of the property. b. Calculate the realized gain on the sale. c. Calculate the amount of ordinary income under Section 1245. d. Calculate the Section 1231 gain.arrow_forwardtudent question Time to preview question: 00:09:37 Hauswirth Corporation sold (or exchanged) a warehouse in year 0. Hauswirth bought the warehouse several years ago for $102,000, and it has claimed $33,800 of depreciation expense against the building. Note: Loss amounts should be indicated by a minus sign. Leave no answer blank. Enter zero if applicable. Round your final answers to the nearest whole dollar amount. Required: Assuming that Hauswirth receives $80,500 in cash for the warehouse, compute the amount and character of Hauswirth's recognized gain or loss on the sale. Assuming that Hauswirth exchanges the warehouse in a like-kind exchange for some land with a fair market value of $80,500, compute Hauswirth's realized gain or loss, recognized gain or loss, deferred gain or loss, and basis in the new land. Assuming that Hauswirth receives $27,500 in cash in year 0 and a $88,500 note receivable that is payable in year 1, compute the amount and character of Hauswirth's…arrow_forwardV4. 3. Vaden Company purchased a patent from Williams Co. for $260,000 on January 1, 2016 when there was 15 years remaining in the legal life of the patent. Vaden estimates that the useful life of the patent will be 10 years from the date of acquisition. Expenditures of $25,000 for successful litigation in defense of the patent were paid on January 1, 2022. Required: a. Compute the carrying value of the patent at December 31, 2022. b. At the beginning of 2023, new market research indicates that the fair value of the patent is $90,000. Estimated future cash flows from the patent are $94,000 on January 1, 2023. Determine if the patent is impaired and, if so, prepare the journal entry necessary.arrow_forward
- AccountingAccountingISBN:9781337272094Author:WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.Publisher:Cengage Learning,Accounting Information SystemsAccountingISBN:9781337619202Author:Hall, James A.Publisher:Cengage Learning,
- Horngren's Cost Accounting: A Managerial Emphasis...AccountingISBN:9780134475585Author:Srikant M. Datar, Madhav V. RajanPublisher:PEARSONIntermediate AccountingAccountingISBN:9781259722660Author:J. David Spiceland, Mark W. Nelson, Wayne M ThomasPublisher:McGraw-Hill EducationFinancial and Managerial AccountingAccountingISBN:9781259726705Author:John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting PrinciplesPublisher:McGraw-Hill Education