Straight-line
To record: the
Explanation of Solution
Record the journal entry for the disposal of the equipment with no salvage value on January 1, 2017.
Date | Account Title and Description | Post Ref. | Debit ($) | Credit ($) |
January 1,2017 | 62,000 | |||
Equipment | 62,000 | |||
(To record the disposal of the asset.) |
Table (1)
Description:
- Accumulated depreciation is a contra asset with a normal credit balance. It is decreased by $62,000 that increases the value of assets by $62,000. Therefore, the Accumulated depreciation-Equipment account is debited with $62,000.
- Equipment is an asset and is decreased by $62,000 due to disposal of equipment. Therefore, Equipment account is credited with $62,000.
To record: the journal entry for the depreciation expense for the equipment sold on June 30, 2017
Explanation of Solution
Record the journal entry for the depreciation expense for the equipment sold on June 30, 2017.
Date | Account Title and Description | Post Ref. | Debit ($) | Credit ($) |
June 30,2017 | Depreciation expense | 6,000(1) | ||
Accumulated depreciation – Equipment | 6,000 | |||
(To record depreciation expenses.) |
Table (2)
Working note:
Calculate the amount of depreciation.
Cost of the computer =$36,000
Useful life= 3 years
Number of months used in 2017 = 6 months (January 1, 2017-June 30, 2017)
Description:
- Depreciation expense is an expense, and it decreases the
stockholder’s equity by $6,000. Therefore, Depreciation expense – Equipment is debited with $6,000. - Accumulated depreciation is a contra asset with a normal credit balance. It is increased by $6,000 that decreases the value of assets by $6,000. Therefore, the Accumulated depreciation-Equipment account is credited with $6,000.
To record: the journal entry for the disposal of plant assets on June 30, 2017
Explanation of Solution
Record the journal entry for the disposal of plant assets on June 30, 2017.
Date | Account Title and Description | Post Ref. | Debit ($) | Credit ($) |
June 30, 2017 | Cash | 5,000 | ||
Accumulated depreciation – Equipment |
30,000 (2) | |||
Loss on disposal of plant assets |
1,000 (3) | |||
Equipment | 36,000 | |||
(To record disposal of plant assets.) |
Table (3)
Working notes:
Determine the amount of accumulated depreciation.
Cost of the computer =$36,000
Useful life= 3 years
Number of years used= 2 years (January 1, 2015-December 31, 2016)
Number of months used in 2017 = 6 months (January 1, 2017-June 30, 2017)
Determine the amount of gain / (loss) on disposal of plant asset.
Description:
- Cash is an asset and increased by $5,000 due to sale of equipment. Therefore, Cash account is debited with $5,000.
- Accumulated depreciation-Equipment is a contra asset with a normal credit balance. It increases the value of the asset by $30,000. Therefore, Accumulated depreciation-Equipment account is debited with $30,000.
- Loss on disposal of Plant Assets decreases the revenue and thus stockholders’ equity is decreased by $1,000. Therefore, Loss on disposal of Plant Assets account is debited with $1,000.
- Equipment is asset and decreased by $36,000 due to sale of equipment. Therefore, Equipment account is credited with $36,000.
To record: the journal entry for the depreciation expense for the equipment sold on December 31, 2017
Explanation of Solution
Record the journal entry for the depreciation expense for the equipment sold on December 31, 2017.
Date | Account Title and Description | Post Ref. | Debit ($) | Credit ($) |
December 31,2017 | Depreciation expense | 4,200 (4) | ||
Accumulated depreciation – Equipment | 4,200 | |||
(To record depreciation expenses) |
Table (4)
Working note:
Compute the depreciation expense for the delivery truck.
Cost of the delivery truck =$25,000
Salvage value =$4,000
Estimated useful life =5 years
Description:
- Depreciation expense is an expense, and it decreases the stockholder’s equity by $4,200. Therefore, Depreciation expense – Equipment is debited with $4,200.
- Accumulated depreciation is a contra asset with a normal credit balance. It is increased by $4,200 that decreases the value of assets by $4,200. Therefore, the Accumulated depreciation-Equipment account is credited with $4,200.
To record: the journal entry for the disposal of plant assets on December 31, 2017
Explanation of Solution
Record the journal entry for the disposal of plant assets on December 31, 2017.
Date | Account Title and Description | Post Ref. | Debit ($) | Credit ($) |
December 31, 2017 | Cash | 9,000 | ||
Accumulated depreciation – equipment | 16,800 (5) | |||
Equipment | 25,000 | |||
Gain on disposal of plant asset | 800 (6) | |||
(To record disposal of plant assets) |
Table (5)
Working notes:
Determine the accumulated depreciation.
Cost of the delivery truck =$25,000
Useful life= 5 years
Number of years used= 4 years (January 1, 2014-December 31, 2017)
Determine the amount of gain / (loss) on disposal of plant asset.
Description:
- Cash is an asset and increased by $9,000 due to sale of equipment. Therefore, Cash account is debited with $9,000.
- Accumulated depreciation-Equipment is a contra asset with a normal credit balance. It increases the value of the asset by $16,800. Therefore, Accumulated depreciation-Equipment account is debited with $16,800.
- Equipment is an asset and decreased due to sale of equipment by $25,000. Therefore, Equipment account is credited with $25,000.
- Gain on disposal of Plant assets increases the revenue and thus the stockholders’ equity is increased by $800. Therefore, the gain on disposal of plant assets account is credited with $800.
Want to see more full solutions like this?
Chapter 9 Solutions
FINANCIAL ACCT.:TOOLS...(LL)-W/ACCESS
- 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 (MACRS) for tax purposes. He 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 years 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 Tims consideration in the selection of a depreciation method?arrow_forwardOn January 1, 2014, Klinefelter Company purchased a building for 520,000. The building had an estimated life of 20 years and an estimated residual value of 20,000. The company has been depreciating the building using straight-line depreciation. At the beginning of 2020, the following independent situations occur: a. The company estimates that the building has a remaining life of 10 years (for a total of 16 years). b. The company changes to the sum-of-the-years-digits method. c. The company discovers that it had ignored the estimated residual value in the computation of the annual depreciation each year. Required: For each of the independent situations, prepare all journal entries related to the building for 2020. Ignore income taxes.arrow_forwardJohnson, Incorporated had the following transactions during the year: Purchased a building for $5,000,000 using a mortgage for financing Paid $2,000 for ordinary repair on a piece of equipment Sold product on account to customers for $1,500,600 Purchased a copyright for $5,000 cash Paid $20,000 cash to add a storage shed in the corner of an existing building Paid $360,000 in monthly salaries Paid $25,000 for routine maintenance on equipment Paid $110,000 for major repairs If all transactions were recorded properly, what amount did Johnson capitalize for the year, and what amount did Johnson expense for the year?arrow_forward
- On May 1, 2015, Zoe Inc. purchased Branta Corp. for $15,000,000 in cash. They only received $12,000,000 in net assets. In 2016, the market value of the goodwill obtained from Branta Corp. was valued at $4,000,000, but in 2017 it dropped to $2,000,000. Prepare the journal entry for the creation of goodwill and the entry to record any impairments to it in subsequent years.arrow_forwardGrandorf Company replaced the engine in a truck for 8,000 and expects the new engine will extend the life of the truck two years beyond the original estimated life. Related information is provided below. Cost of truck 65,000 Salvage value 5,000 Original estimated life 6 years The truck was purchased on January 1, 20-1. The engine was replaced on January 1, 20-6. Using straight-line depreciation, compute depreciation expense for 20-6.arrow_forwardJada Company had the following transactions during the year: Purchased a machine for $500,000 using a long-term note to finance it Paid $500 for ordinary repair Purchased a patent for $45,000 cash Paid $200,000 cash for addition to an existing building Paid $60,000 for monthly salaries Paid $250 for routine maintenance on equipment Paid $10,000 for major repairs Depreciation expense recorded for the year is $25,000 If all transactions were recorded properly, what is the amount of increase to the Property, Plant, and Equipment section of Jadas balance sheet resulting from this years transactions? What amount did Jada report on the income statement for expenses for the year?arrow_forward
- Financial AccountingAccountingISBN:9781305088436Author:Carl Warren, Jim Reeve, Jonathan DuchacPublisher:Cengage LearningCollege Accounting, Chapters 1-27AccountingISBN:9781337794756Author:HEINTZ, James A.Publisher:Cengage Learning,
- Financial Accounting: The Impact on Decision Make...AccountingISBN:9781305654174Author:Gary A. Porter, Curtis L. NortonPublisher:Cengage LearningPrinciples of Accounting Volume 1AccountingISBN:9781947172685Author:OpenStaxPublisher:OpenStax College