McGraw-Hill/Irwin Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved. Chapter 9 Reporting and Interpreting Long-Lived Tangible and Intangible Assets PowerPoint Authors: Susan Coomer Galbreath, Ph.D., CPA Charles W. Caldwell, D.B.A., CMA Jon A. Booker, Ph.D., CPA, CIA Fred Phillips, Ph.D., CA Learning Objective 1 Define, classify, and explain the nature of long-lived assets. 9-3 Definition and Classification Actively Used in Operations 9-4 Value represented by rights that produce benefits. Will not be up within the next year Intangibles withused a limited life, such as patents and copyrights, are subject to Examples amortization. Land Intangibles Intangible Tangiblewith an Assets subject to depreciation unlimited (or indefinite) and equipment No Physical life, such as goodwill and Buildings Physical trademarks, FurnitureSubstance and fixtures Substanceare not amortized. Learning Objective 2 Apply the cost principle to the acquisition of long-lived assets. 9-5 Acquisition of Tangible Assets Acquisition cost includes: 1. purchase price, and 2. all expenditures needed to prepare the asset for its intended use. Recording costs as assets is called capitalizing the costs. 9-6 Acquisition of Tangible Assets Purchase cost Legal fees Surveying fees Broker’s commissions Purchase/construction cost Legal fees Appraisal fees Architectural fees Purchase/construction cost Sales taxes Transportation costs Installation costs Land Buildings Equipment 9-7 Acquisition of Tangible Assets Basket Purchase The total cost of a combined purchase of land and building is allocated in proportion to their relative market values. Appraised % ofpurchased Purchase land Apportioned On January 1, Jones and Asset Valuecash. Price Cost buildingValue for $400,000 The appraised b* $325,000, a building, c b × c values are and land, Land $ 175,000 $175,000. 35% × $ 400,000 = $ 140,000 Building Total 325,000 $ 500,000 65% × 100% 400,000 = 260,000 $ 400,000 How much of the $400,000 purchase price will * $175,000 = 35% be÷ $500,000 charged to the building and land accounts? $325,000 ÷ $500,000 = 65% 9-8 Cash Purchase Cedar Fair purchased a new ride for $26,000,000 less a $1,000,000 discount. Cedar Fair paid $125,000 for transportation and $625,000 for installation of the ride. Prepare the journal entry for the acquisition assuming Cedar Fair paid cash for the new ride. 1 Analyze 2 Record 9-9 Credit Purchase Instead of paying cash, assume that Cedar Fair issued a note for the new ride, but paid cash for the transportation and installation of the ride. Prepare the journal entry for the acquisition. 1 Analyze 2 Record 9-10 Maintenance Costs Incurred during Use Type of Expenditure 9-11 Identifying Characteristics Accounting Treatment Ordinary 1. Relatively small, recurring expenditures repairs and that maintain normal operating condition maintenance 2. Do not increase productivity 3. Do not extend life beyond original estimate Expense Extraordinary 1. Relatively large, infrequent expenditures repairs, such as major overhauls or replacements replacements, of major components and additions 2. May extend useful life 3. May increase productivity or efficiency Capitalize Depreciation Expense Depreciation is a cost allocation process that matches costs of operational assets with periods benefited by their use. Acquisition Cost Cost Allocaton Balance Sheet 9-12 Expense Income Statement Depreciation Expense Depreciation for the current year Income Statement Accumulated Depreciation Total of depreciation to date for an asset Balance Sheet Depreciation Expense The effects of $130 of depreciation on the accounting equation and the journal entry to record them follow: 1 Analyze 2 Record Depreciation calculations require three amounts for each asset: Acquisition cost. Estimated useful life. Estimated residual value. 9-13 Depreciation Expense 2008 Depreciation Includes $130 for 2008 Book value 2008 9-14 Learning Objective 3 Apply various depreciation methods as economic benefits are used up over time. 9-15 Depreciation Methods Straight-line Units-of-production Declining balance We will use the following information to illustrate the three methods of depreciation: At the beginning of the year, Cedar Fair purchased a new Go-Cart Ride for $62,500 cash. The ride has an estimated useful life of 3 years and an estimated residual value of $2,500. 9-16 Straight-Line Method ($62,500 - $2,500) × 1 3 Depreciation Accumulated Expense Depreciation Year (debit) (credit) 1 2 3 9-17 $ 20,000 20,000 20,000 $ 60,000 $ $ 20,000 20,000 20,000 60,000 = $20,000 per year Accumulated Undepreciated Depreciation Balance (credit balance) (book value) $ 62,500 $ 20,000 42,500 40,000 22,500 60,000 2,500 Units-of-Production Method The ride has a 100,000-mile estimated useful life. If the ride is used 30,000 miles in the first year, what is the amount of depreciation expense? ($62,500 - $2,500) × 9-18 30,000 100,000 = $18,000 Units-of-Production Method 9-19 Year Miles 1 2 3 30,000 50,000 20,000 100,000 Depreciation Depreciation Expense Expense (debit) $ $ 18,000 30,000 12,000 60,000 Accumulated Depreciation (credit Balance balance) $ 18,000 48,000 60,000 Undepreciated Balance (book value) $ 62,500 44,500 14,500 2,500 Declining-Balance Method What is the amount of amount of depreciation for each of the first two years? First Year Second Year × 2 3 = $41,667 ($62,500 - $41,667) × 2 3 = $13,889 ($62,500 - $0) Cost – Accumulated Depreciation Annual computation ignores residual value. 9-20 Double-Declining-Balance Method Year Year 1 1 2 2 3 3 Depreciation Depreciation Expense Expense (debit) (debit) $$ $$ 41,667 41,667 13,889 13,889 4,629 4,444 60,185 60,000 Accumulated Accumulated Undepreciated Undepreciated Depreciation Balance Depreciation Balance Balance (credit balance) (book (bookvalue) value) $$ 62,500 62,500 $$ 41,667 20,833 41,667 20,833 55,556 6,944 55,556 6,944 60,185 2,315 60,000 2,500 Below residual value Depreciation expense is limited to the amount that 2 $4,629 ($62,500 $55,556) × = value. reduces book value to the estimated residual Third Year 3 9-21 Partial Year Depreciation Calculations When a plant asset is acquired during the year, depreciation is calculated for the fraction of the year the asset is owned. 9-22 Summary of Depreciation Methods 9-23 Tax Depreciation For tax purposes, most corporations use the Modified Accelerated Cost Recovery System (MACRS). MACRS depreciation provides for rapid write-off of an asset’s cost in order to stimulate new investment. 9-24 Learning Objective 4 Explain the effect of asset impairment on the financial statements. 9-25 Asset Impairment Losses Impairment is the loss of a significant portion of the utility of an asset through . . . Casualty. Obsolescence. Lack of demand for the asset’s services. A loss should be recognized when an asset suffers a permanent impairment. Cedar Fair recorded a write-down of $3,200,000 on equipment. 1 Analyze 2 Record 9-26 Learning Objective 5 Analyze the disposal of longlived tangible assets. 9-27 Disposal of Tangible Assets Update depreciation to date of disposal. Record the disposal. dr Cash (+A) dr Accumulated Depreciation (-xA) cr Equipment (-A) cr Gain on Disposal (+R, +SE) Gain if cash received is greater than asset’s book value 9-28 Book value Disposal of Tangible Assets Update depreciation to date of disposal. Record the disposal. dr Cash (+A) dr Loss on Disposal (+E, -SE) dr Accumulated Depreciation (-xA) cr Equipment (-A) Loss if cash received is less than asset’s book value 9-29 Book value Disposal of Tangible Assets Cedar Fair sold a hotel for $3,000,000 cash at the end of its 16th year of use. The hotel originally cost $20,000,000, and was depreciated using the straight-line method with zero residual value and a useful life of 20 years. The amount of depreciation per year is: a. b. c. d. 9-30 $0. $500,000. $1,000,000. $2,000,000. Annual Depreciation: ($20,000,000 - $0) ÷ 20 Years = $1,000,000 per year Disposal of Tangible Assets Cedar Fair sold a hotel for $3,000,000 cash at the end of its 16th year of use. The hotel originally cost $20,000,000, and was depreciatedAccumulated using the straight-line method Depreciation = with zero residual value and a useful life of 20 years. (16 yrs. × $1,000,000) = $16,000,000 The equipment’s value at date BV = Cost -book Accumulated Depreciation of sale is:- $16,000,000 BV = $20,000,000 = $4,000,000 a. b. c. d. 9-31 $4,000,000. $3,000,000. $17,000,000. $16,500,000. Disposal of Tangible Assets Cedar Fair sold a hotel for $3,000,000 cash at the end of its 16th year of use. The hotel originally cost $20,000,000, and was depreciated using the straight-line method with zero residual value and a useful life of 20 years. The equipment’s sale resulted in: a. b. c. d. 9-32 a loss of $1,000,000. a gain of $3,000,000. a gain of $1,000,000. a loss of $5,000,000. Loss = Cash Received - Book Value Loss = $3,000,000 - $4,000,000 = $1,000,000 Disposal of Tangible Assets Analyze and prepare the journal entry to record Cedar Fair’s sale of the hotel. 1 Analyze 2 Record 9-33 Learning Objective 6 Analyze the acquisition, use, and disposal of long-lived intangible assets. 9-34 Intangible Assets Often provide exclusive rights or privileges. Noncurrent assets without physical substance. Intangible Assets Useful life is often difficult to determine. 9-35 Usually acquired for operational use. Intangible Assets Record at current cash equivalent cost, including purchase price, legal fees, and filing fees. Amortize intangibles with limited lives over the shorter of their economic lives or legal lives using the straight-line method. 9-36 Trademarks and Copyrights A trademark is a symbol, design, or logo associated with a business. Internally developed trademarks have no recorded asset cost. Purchased trademarks are recorded at cost. A copyright is an exclusive right granted by the federal government to protect artistic or intellectual properties. Legal life is life of creator plus 70 years. 9-37 Amortize cost over the period benefited. Patents and Licensing Rights A patent is an exclusive right granted by the federal government to sell or manufacture an invention. Cost is purchase price plus legal cost to defend. Amortize cost over the shorter of useful life or 20 years. Licensing rights grant limited permission to use a product or service according to specific terms and conditions. You may be using computer software that is made available to you through a campus licensing agreement. 9-38 Franchises A franchise provides legally protected rights to sell products or provide services purchased by a franchisee from the franchisor. 9-39 Goodwill Purchase Price > Fair Market Value of Net Assets Acquired 9-40 Occurs when one company buys another company. Only purchased goodwill is an intangible asset. Is not amortized. Is impairment tested and may be written down. Amortization of Limited Life Intangible Asset Assume Cedar Fair purchased a patent for an uphill water-coaster for $800,000 and intends to use it for 20 years. Each year, the company would record $40,000 in Amortization Expense ($800,000 ÷ 20 years). 1 Analyze Assets Patent (-A) $40,000 2 9-41 = Liabilities Record dr Amortization Expense (+E, -SE) cr Patent (-A) + Stockholders' Equity Amortization Expense (+E, -SE) -40,000 40,000 40,000 Summary of Accounting Rules for Long-Lived Assets Stage Subject Acquisition Purchased Asset Use Tangible Assets Capitalize all related costs Intangible Assets Capitalize all related costs Expense related costs Capitalize related costs Not applicable Not applicable straight-line units-of-production declining-balance Do not depreciate land Typically use straight line only Write-down if necessary Write-down if necessary Report gain or (loss) when . . . Receive more (less) on disposal than book value Receive more (less) on disposal than book value Repairs/maintenance Ordinary Extraordinary Depreciation/ amortization Limited life Unlimited life Impairment test Disposal 9-42 Do not amortize Learning Objective 7 Interpret the fixed asset turnover ratio. 9-43 Turnover Analysis Fixed = Asset Turnover Net Sales Revenue Average Net Fixed Assets This ratio measures the sales dollars generated by each dollar invested in fixed assets. For the year 2008, Cedar Fair had $1,000,000 of revenue. End-of-year fixed assets were $1,800,000 and beginning-of-year fixed assets were $1,940,000. (All numbers in millions.) 9-44 Turnover Analysis Fixed = Asset Turnover Net Sales Revenue Average Net Fixed Assets Fixed = Asset Turnover $1,000,000 ($1,800,000 + $1,940,000) ÷ 2 = 0.53 2008 Fixed Asset Turnover Comparisons Yahoo! 5.68 9-45 Six Flags 0.64 Cedar Fair 0.53 Learning Objective 8 Describe the factors to consider when comparing companies’ long-lived assets. 9-46 Impact of Depreciation Differences Accelerated depreciation, in the early years of an asset’s useful life, results in higher depreciation expense, lower net income, and lower book value than would result using straight-line depreciation. Selling an asset with a low book value, resulting from accelerated depreciation, might result in a gain. Selling the same asset with a higher book value, resulting from straight-line depreciation, might result in a loss. 9-47 Supplement 9A Natural Resources Natural Resources Depletion is the process of allocating a natural resource’s cost over the period of its extraction. Depletion is similar in concept to depreciation. Depletion that is computed for a period is first added to inventory and then expensed when the inventory is sold. Total depletion cost 9-49 Cost of goods sold Inventory for sale Unsold Inventory Supplement 9B Changes in Depreciation Estimates Changes in Depreciation Estimates Predicted residual value Predicted useful life So depreciation is an estimate. Over the life of an asset, new information may come to light that indicates the original estimates need to be revised. 9-51 Changes in Depreciation Estimates Cedar Fair purchased equipment that cost $60,000,000 with an estimated useful life of 20 years and an estimated salvage value of $3,000,000. During year 5, Cedar Fair changed the estimated useful life to 25 years and lowered the estimated salvage value to $2,400,000. Calculate depreciation expense for year 5 and thereafter using the straight-line method. 9-52 Changes in Depreciation Estimates When our estimates change, the new depreciation is: Book value at date of change – Residual value at date of change Remaining useful life at date of change Asset original cost $ 60,000,000 Accumulated depreciation for 4 years (($60,000,000 – $3,000,000) ÷ 20) × 4 years 11,400,000 Remaining book value $ 48,600,000 Revised annual depreciation ($48,600,000 – $2,400,000) ÷ 21 9-53 $ 2,200,000 Chapter 9 Solved Exercises M9-4, M9-5, M9-6, E9-6, E9-7, E9-11 M9-4 Computing Book Value (Straight-Line Depreciation) Calculate the book value of a two-year-old machine that cost $200,000, has an estimated residual value of $40,000, and has an estimated useful life of four years. The company uses straight-line depreciation. ($200,000 - $40,000) × 1 4 Depreciation Accumulated Expense Depreciation Year (debit) (credit) 1 2 9-55 $ 40,000 40,000 $ 40,000 40,000 = $40,000 per year Accumulated Undepreciated Depreciation Balance (credit balance) (book value) $ 200,000 $ 40,000 160,000 80,000 120,000 M9-5 Computing Book Value (Units-of-Production Depreciation) Calculate the book value of a two-year-old machine that cost $200,000, has an estimated residual value of $40,000, and has an estimated useful life of 20,000 machine hours. The company uses units-of-production depreciation and ran the machine 3,000 hours in year 1 and 8,000 hours in year 2. 1st Year Depreciation ($200,000 - $40,000) × 3,000 20,000 = $24,000 8,000 20,000 = $64,000 2nd Year Depreciation ($200,000 - $40,000) × 9-56 M9-5 Computing Book Value (Units-of-Production Depreciation) Calculate the book value of a two-year-old machine that cost $200,000, has an estimated residual value of $40,000, and has an estimated useful life of 20,000 machine hours. The company uses units-of-production depreciation and ran the machine 3,000 hours in year 1 and 8,000 hours in year 2. Year 1 2 9-57 Hours 3,000 8,000 Depreciation Expense (debit) $ 24,000 64,000 Accumulated Depreciation (credit balance) $ 24,000 88,000 Undepreciated Balance (book value) $ 200,000 176,000 112,000 M9-6 Computing Book Value (Double-Declining-Balance Depreciation) Calculate the book value of a two-year-old machine that cost $200,000, has an estimated residual value of $40,000, and has an estimated useful life of four years. The company uses double-declining-balance depreciation. Round to the nearest dollar. 1st Year Depreciation × 2 4 = $100,000 ($200,000 - $100,000) × 2 4 = $50,000 ($200,000 - $0) 2nd Year Depreciation 9-58 M9-6 Computing Book Value (Double-Declining-Balance Depreciation) Calculate the book value of a two-year-old machine that cost $200,000, has an estimated residual value of $40,000, and has an estimated useful life of four years. The company uses double-declining-balance depreciation. Round to the nearest dollar. Year 1 2 9-59 Depreciation Expense (debit) $ 100,000 50,000 Accumulated Depreciation (credit balance) $ 100,000 150,000 Undepreciated Balance (book value) $ 200,000 100,000 50,000 E9-6 Computing Depreciation under Alternative Methods PlasticWorks Corporation bought a machine at the beginning of the year at a cost of $12,000. The estimated useful life was five years, and the residual value was $2,000. Assume that the estimated productive life of the machine is 10,000 units. Expected annual production was: year 1, 3,000 units; year 2, 3,000 units; year 3, 2,000 units; year 4, 1,000 units; and year 5, 1,000 units. Required: 1. Complete a depreciation schedule for each of the alternative methods. a. Straight-line. b. Units-of-production. c. Double-declining-balance. 1a. Straight-line Year 0 1 2 3 4 5 9-60 Depreciation Expense (debit) ($12,000 ($12,000 ($12,000 ($12,000 ($12,000 - $2,000) $2,000) $2,000) $2,000) $2,000) × × × × × 1/5 1/5 1/5 1/5 1/5 = $ 2,000 = 2,000 = 2,000 = 2,000 = 2,000 Accumulated Depreciation (credit balance) $ 2,000 4,000 6,000 8,000 10,000 Book Value $ 12,000 10,000 8,000 6,000 4,000 2,000 E9-6 Computing Depreciation under Alternative Methods 1b. Units-of-production Year 0 1 2 3 4 5 Accumulated Depreciation (credit balance) Depreciation Expense (debit) ($12,000 ($12,000 ($12,000 ($12,000 ($12,000 - $2,000) $2,000) $2,000) $2,000) $2,000) × × × × × 3,000/10,000 = $ 3,000 3,000/10,000 = 3,000 2,000/10,000 = 2,000 3,000/10,000 = 1,000 3,000/10,000 = 1,000 $ 3,000 6,000 8,000 9,000 10,000 Book Value $ 12,000 9,000 6,000 4,000 3,000 2,000 1c. Double-declining-balance Year 0 1 2 3 4 5 9-61 Accumulated Depreciation (credit balance) Depreciation Expense (debit) ($12,000 - $0) × 2/5 = ($12,000 - $4,800) × 2/5 = ($12,000 - $7,680) × 2/5 = $2,592 - $2,000 = $ 4,800 2,880 1,728 592 $ 4,800 7,680 9,408 10,000 10,000 Book Value $ 12,000 7,200 4,320 2,592 2,000 2,000 E9-6 Computing Depreciation under Alternative Methods Required: 2. Which method will result in the highest net income in year 2? Does this higher net income mean the machine was used more efficiently under this depreciation method? The method that will result in the highest net income is the one that reports the lowest depreciation expense. Straight-line depreciation method yields the lowest depreciation expense in year 2 ($2,000), and therefore results in the highest net income in year 2. This higher net income does not mean the equipment was used more efficiently. It only means a smaller amount of the asset’s cost was allocated to depreciation expense in year 2 using straight-line depreciation. 9-62 E9-7 Computing Depreciation under Alternative Methods Sonic Corporation purchased and installed electronic payment equipment at its drive-inn restaurants in San Marcos, TX, at a cost of $27,000. The equipment has an estimated residual value of $1,500. The equipment is expected to process 255,000 payments over its three-year useful life. Per year, expected payment transactions are 61,200, year 1; 140,250, year 2; and 53,550, year 3. Required: Complete a depreciation schedule for each of the alternative methods. 1. Straight-line. 2. Units-of-production. 3. Double-declining-balance. 1. Straight-line ($27,000 - $1,500) × 9-63 1 3 = $8,500 per year E9-7 Computing Depreciation under Alternative Methods 1. Straight-line Depreciation Accumulated Expense Depreciation Year (debit) (credit) 1 2 3 9-64 $ 8,500 8,500 8,500 $ 25,500 $ $ 8,500 8,500 8,500 25,500 Accumulated Undepreciated Depreciation Balance (credit balance) (book value) $ 27,000 $ 8,500 18,500 17,000 10,000 25,500 1,500 E9-7 Computing Depreciation under Alternative Methods 2. Units-of-production 1st Year Depreciation ($27,000 - $1,500) × 61,200 255,000 = $6,120 × 140,250 255,000 = $14,025 × 53,550 255,000 = $5,355 2nd Year Depreciation ($27,000 - $1,500) 3rd Year Depreciation ($27,000 - $1,500) 9-65 E9-7 Computing Depreciation under Alternative Methods 2. Units-of-production 9-66 Year Payments 1 2 3 61,200 140,250 53,550 255,000 Depreciation Expense (debit) $ $ 6,120 14,025 5,355 25,500 Accumulated Depreciation (credit balance) $ 6,120 20,145 25,500 Undepreciated Balance (book value) $ 27,000 20,880 6,855 1,500 E9-7 Computing Depreciation under Alternative Methods 3. Double-declining-balance 1st Year Depreciation ($27,000 - $0) × 2 3 = $18,000 2 3 = $6,000 2 3 = $2,000 2nd Year Depreciation ($27,000 - $18,000) × 3rd Year Depreciation [$27,000 – ($18,000 + $6,000)] × 9-67 E9-7 Computing Depreciation under Alternative Methods 3. Double-declining-balance Year 1 2 3 Depreciation Expense (debit) $ $ 18,000 6,000 2,000 1,500 26,000 25,500 Accumulated Depreciation (credit Balance balance) $ 18,000 24,000 26,000 25,500 Undepreciated Balance (book value) $ 27,000 9,000 3,000 1,000 1,500 Below residual value Depreciation expense is limited to the amount that reduces book value to the estimated residual value. 9-68 E9-11 Demonstrating the Effect of Book Value on Reporting an Asset Disposal FedEx Corporation is the world’s leading express-distribution company. In addition to the world’s largest fleet of all-cargo aircraft, the company has more than 53,700 ground vehicles that pick up and deliver packages. Assume that FedEx sold a delivery truck for $16,000. FedEx had originally purchased the truck for $28,000, and had recorded depreciation for three years. Required: 1. Calculate the amount of gain or loss on disposal, assuming that Accumulated Depreciation was: (a) $12,000, (b) $10,000, and (c) $15,000. Sale price Cost Less: Accumulated Depreciation Book Value Gain (Loss) 9-69 a $ 16,000 28,000 12,000 16,000 $ - Case b $ 16,000 28,000 10,000 18,000 $ (2,000) c $ 16,000 28,000 15,000 13,000 $ 3,000 E9-11 Demonstrating the Effect of Book Value on Reporting an Asset Disposal Case (b) Book Value = $18,000 Assets = Liabilities + Cash + 16,000 Delivery Truck – 28,000 Accumulated Depreciation + 10,000 Stockholders' Equity Loss on Disposal - 2,000 Case (c) Book Value = $13,000 Assets Cash + 16,000 Delivery Truck – 28,000 Accumulated Depreciation + 15,000 9-70 = Liabilities + Stockholders' Equity Gain on Disposal + 3,000 E9-11 Demonstrating the Effect of Book Value on Reporting an Asset Disposal Required: 2. Using the following structure, indicate the effects (accounts, amounts, and + or -) for the disposal of the truck in each of the three preceding situations. Assets = Liabilities + Stockholders’ Equity Case (a) Book Value = $16,000 Assets Cash + 16,000 Delivery Trucks – 28,000 Accumulated Depreciation + 12,000 9-71 = Liabilities + Stockholders' Equity E9-11 Demonstrating the Effect of Book Value on Reporting an Asset Disposal Required: 3. Based on the three preceding situations, explain how the amount of depreciation recorded up to the time of disposal affects the amount of gain or loss on disposal. The gain or loss reported on disposal is directly affected by the book value of the asset, which itself is affected by the amount of depreciation recorded before the disposal. With the same sale price of $16,000 in each case . . . A larger amount of depreciation recorded before disposal results in lower book value and a gain on disposal (case 1c). A smaller amount depreciation recorded before disposal results in higher book value and a loss on disposal (case 1b). 9-72 E9-11 Demonstrating the Effect of Book Value on Reporting an Asset Disposal Required: 4. Prepare the journal entry to record the disposal of the truck for each situation in requirement 1. Case (a) Book value = $16,000 dr Cash (+A) dr Accumulated Depreciation (-xA,+A) cr Delivery Trucks (-A) 16,000 12,000 28,000 Case (b) Book value = $18,000 dr Cash (+A) dr Accumulated Depreciation (-xA,+A) dr Loss on Disposal (-SE) cr Delivery Trucks (-A) 9-73 16,000 10,000 2,000 28,000 E9-11 Demonstrating the Effect of Book Value on Reporting an Asset Disposal Required: 4. Prepare the journal entry to record the disposal of the truck for each situation in requirement 1. Case (c) Book value = $13,000 dr Cash (+A) dr Accumulated Depreciation (-xA,+A) cr Gain on Disposal (+SE) cr Delivery Trucks (-A) 9-74 16,000 15,000 3,000 28,000 End of Chapter 9