Prepare
Explanation of Solution
Plant assets:
Plant assets refer 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.
Prepare journal entries to record the given transaction and events as follows:
Year 1:
Date | Account Title and Explanation |
Post Ref. |
Debit ($) |
Credit ($) |
January 1, Year 1 | Machinery (1) | 114,270 | ||
Cash | 114,270 | |||
(To record the purchase of machinery) |
Table (1)
- Machinery is an asset account and it increases the value of asset. Therefore, debit the machinery account by $114,270.
- Cash is an asset account and it decreases the value of asset. Therefore, credit cash account by $114,270.
Date | Account Title and Explanation |
Post Ref. |
Debit ($) |
Credit ($) |
December 31, Year 1 | 17,425 | |||
17,425 | ||||
(To record the depreciation expense for machinery) |
Table (2)
- Depreciation expense is an expense account, and it decreases the value of equity. Hence, debit the depreciation expense by $17,425.
- Accumulated depreciation is a contra asset, and it decreases the value of assets. Therefore, credit the accumulated depreciation by $17,425.
Working Notes:
Compute the acquisition cost of machinery:
Compute depreciation expense:
Year 2:
Date | Account Title and Explanation |
Post Ref. |
Debit ($) |
Credit ($) |
December 31, Year 2 | Depreciation Expense (5) | 27,500 | ||
Accumulated Depreciation – Machinery | 27,500 | |||
(To record the depreciation expense for machinery) |
Table (3)
- Depreciation expense is an expense account, and it decreases the value of equity. Hence, debit the depreciation expense by $27,500.
- Accumulated depreciation is a contra asset, and it decreases the value of assets. Therefore, credit the accumulated depreciation by $27,500.
Working Notes:
Compute the remaining depreciable amount:
Computation of Depreciation | |
Particulars | $ |
Acquisition cost, January 1, Year 1 | $114,270 |
Less: Accumulated depreciation for first year | (17,425) |
Book value | 96,845 |
Less: Revised salvage value | (14,345) |
Remaining depreciable amount | $82,500 |
Table (4)
…… (4)
Compute the revised depreciation for 2017 as follows:
Year 3:
Date | Account Title and Explanation |
Post Ref. |
Debit ($) |
Credit ($) |
December 31, Year 3 | Depreciation Expense (5) | 27,500 | ||
Accumulated Depreciation – Machinery | 27,500 | |||
(To record the annual depreciation expense for machinery) |
Table (5)
- Depreciation expense is an expense account, and it decreases the value of equity. Hence, debit the depreciation expense by $27,500.
- Accumulated depreciation is a contra asset, and it decreases the value of assets. Therefore, credit the accumulated depreciation by $27,500.
Date | Account Title and Explanation |
Post Ref. |
Debit ($) |
Credit ($) |
December 31, Year 3 | Cash | 25,240 | ||
Accumulated Depreciation – Machinery (6) | 72,425 | |||
Loss on disposal of Machinery (6) | 16,605 | |||
Machinery | 114,270 | |||
(To record the sale of machinery) |
Table (6)
- Cash is an asset account and it increases the value of asset. Therefore, debit the cash account by $25,240.
- Accumulated depreciation is a contra asset, and cancellation of contra account increases the asset. Therefore, debit the accumulated depreciation by $72,425.
- Loss on sale of Machinery is an expense account and it decreases the value of
stockholder’s equity. Therefore, debit the loss on sale of machinery by $16,605. - Machinery is an asset account and it decreases the value of asset. Therefore, credit the machinery account by $114,270.
Working Notes:
Compute the gain or loss on the sale of machinery:
Computation of gain or loss on sale of machinery | ||
Details | Amount ($) |
Amount ($) |
Cost of the Asset | 114,270 | |
Less: Accumulated depreciation | ||
Year 1(2) | 17,425 | |
Year 2 (5) | 27,500 | |
Year 3 (5) | 27,500 | (72,425) |
Book value of asset | 41,845 | |
Less: sold value of Machinery | 25,240 | |
Loss on sale of machinery | (16,605) |
Table (7)
...... (6)
Want to see more full solutions like this?
Chapter 10 Solutions
Principles of Financial Accounting.
- Decor Services completed the following transactions. Journalize the transactions in general journal form, including brief explanations.arrow_forwardRecord journal entries for the following transactions of Telesco Enterprises.arrow_forwardSelected accounts from Boxwood Corporations trial balance are as follows. Prepare the detailed schedule showing the Property, Plant, and Equipment.arrow_forward
- Prepare the required journal entries to record each of the above transactions.arrow_forwardRecord journal entries for the following transactions of Wind Solutions.arrow_forwardPrepare general journal entries for each transaction and identify the financial statement impact of each entry. The financial statements are automatically generated based on the journal entries recorded.arrow_forward
- Prepare journal entries to record the transactions of B company.arrow_forwardWhich of the following is a feature of the transaction file? Conceptually similar to the ledger in a manual accounting systems. Records are frequently updated to reflect the effect of specific events across fiscal periods. Containing records for individual business events that occur during a specific fiscal period. Storing cumulative information about organization's resources and agents.arrow_forwardA trial balance represents the: Multiple Choice Chronological record of all transactions affecting the company. Process of transferring debit and credit information from the journal to the accounts in the general ledger. List of all accounts and their balances at a particular date to ensure that debits equal credits. Source documents used to determine the effects of transactions on the company's accounts.arrow_forward
- College Accounting (Book Only): A Career ApproachAccountingISBN:9781337280570Author:Scott, Cathy J.Publisher:South-Western College PubPrinciples of Accounting Volume 1AccountingISBN:9781947172685Author:OpenStaxPublisher:OpenStax College
- Managerial AccountingAccountingISBN:9781337912020Author:Carl Warren, Ph.d. Cma William B. TaylerPublisher:South-Western College Pub