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Acquisition and Disposition of Property, Plant, and Equipment

The document discusses accounting entries for the acquisition and disposal of property, plant, and equipment. It provides solutions to brief exercises involving journal entries for trading or selling machinery, trucks, buildings and other equipment. The exercises include scenarios where the exchange had commercial substance and where it did not.

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hosnearanaznin07
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174 views5 pages

Acquisition and Disposition of Property, Plant, and Equipment

The document discusses accounting entries for the acquisition and disposal of property, plant, and equipment. It provides solutions to brief exercises involving journal entries for trading or selling machinery, trucks, buildings and other equipment. The exercises include scenarios where the exchange had commercial substance and where it did not.

Uploaded by

hosnearanaznin07
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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CHAPTER 10

Acquisition and Disposition of Property, Plant, and


Equipment

BE10-8 Navajo Corporation traded a used truck (cost $20,000,


accumulated depreciation $18,000) for a small computer worth
$3,300. Navajo also paid $500 in the transaction.
Prepare the journal entry to record the exchange. (The exchange has
commercial substance.)

SOLUTION BE 10-8
Computer 3,300
Accumulated Depreciation—Trucks 18,000
Trucks 20,000
Cash 500
Gain on Disposal of Trucks 800

BRIEF EXERCISE 10-9 Use the information for Navajo Corporation from
BE10-8. Prepare the journal entry to record the exchange, assuming
the exchange lacks commercial substance.

SOLUTION 10-9
Equipment ($3,300 – $800) 2,500
Accumulated Depreciation—Trucks 18,000
Trucks 20,000
Cash 500
BRIEF EXERCISE 10-10
Mehta Company traded a used welding machine (cost $9,000,
accumulated depreciation $3,000) for office equipment with an
estimated fair value of $5,000. Mehta also paid $3,000 cash in the
transaction.
Prepare the journal entry to record the exchange. (The exchange has
commercial substance.)

SOLUTION 10-10
Equipment 5,000
Accumulated Depreciation—Machinery 3,000
Loss on Disposal of Machinery 4,000
Machinery 9,000
Cash 3,000

BRIEF EXERCISE 10-11


Cheng Company traded a used truck for a new truck. The used truck
cost $30,000 and has accumulated depreciation of $27,000. The new
truck is worth $37,000. Cheng also made a cash payment of
$36,000. Prepare Cheng’s entry to record the exchange. (The
exchange lacks commercial substance.)
SOLUTION 10-11
Trucks (new) 37,000
Accumulated Depreciation—Trucks 27,000
Loss on Disposal of Trucks 2,000
Trucks (used) 30,000
Cash 36,000
BRIEF EXERCISE 10-12
Slaton Corporation traded a used truck for a new truck. The used
truck cost $20,000 and has accumulated depreciation of $17,000. The
new truck is worth $35,000. Slaton also made a cash payment of
$33,000. Prepare Slaton’s entry to record the exchange. (The
exchange has commercial substance.)

SOLUTION 10-12

Trucks (new) 35,000


Accumulated Depreciation—Trucks 17,000
Loss on Disposal of Trucks 1,000
Trucks (used) 20,000
Cash 33,000

BRIEF EXERCISE 10-13


Indicate which of the following costs should be expensed when
incurred.
(a) $13,000 paid to rearrange and reinstall machinery.
(b) $200,000 paid for addition to building.
(c) $200 paid for tune-up and oil change on delivery truck.
(d) $7,000 paid to replace a wooden floor with a concrete floor.
(e) $2,000 paid for a major overhaul on a truck, which extends the
useful life.

SOLUTION 10-13 Only cost (c) is expensed when incurred.


BRIEF EXERCISE 10-14
Ottawa Corporation purchased machinery for $20,000 on July 1, 2011.
Depreciation has been recorded at a rate of $2,400 per year, resulting
in a balance in accumulated depreciation of $8,400 at December 31,
2014. The machinery is sold on September 1, 2015, for $10,500.
Prepare journal entries to (a) update depreciation for 2015 and (b)
record the sale.

SOLUTION 10-14

(a) Depreciation Expense ($2,400 X 8/12) 1,600


Accumulated Depreciation—Machinery 1,600

(b) Cash 10,500


Accumulated Depreciation—Machinery
($8,400 + $1,600) 10,000
Machinery 20,000
Gain on Disposal of Machinery 500
BRIEF EXERCISE 10-15
Use the information presented for Ottawa Corporation in BE10-14,
but assume the machinery is sold for $5,200 instead of $10,500.
Prepare journal entries to (a) update depreciation for 2015 and (b)
record the sale.

SOLUTION 10-15

(a) Depreciation Expense ($2,400 X 8/12) 1,600


Accumulated Depreciation—Machinery 1,600

(b) Cash 5,200


Loss on Disposal of Machinery 4,800
Accumulated Depreciation—Machinery 10,000
($8,400 + $1,600)
Machinery 20,000

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