ACCT 202/EXERCISE QUESTION

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ACCT 202/EXERCISE QUESTION
During the current year, Ramirez Developers disposed of plant assets in the following
transaction
Feb. 10 Office equipment costing $26,000 was given to a scrap dealer at no charge. At
the date of disposal, accumulated depreciation on the office equipment amounted
to $25,800.
Apr. 1 Ramirez sold land and a building to Claypool Associates for $900,000, receiving
$100,000 cash and 5 year, 9% note receivable for the remaining balance.
Ramirez’s records showed the following amounts: Land, $50,000; Building,
$550,000; Accumulated Depreciation: Building (at the date of disposal),
$250,000.
Aug.15 Ramirez traded in an old truck for a new one. The old truck had cost $26,000,
and its accumulated depreciation amounted to $18,000. The list price of the new
truck was $39,000, but Ramirez received a $10,000 trade in allowance for the old
truck and paid only $29,000 in cash. Ramirez includes trucks in its Vehicles
account.
Oct.1 Ramirez traded in its old computer system as part of the purchase of a new
system. The old system had cost $15,000, and its accumulated depreciation
amounted to $11,000. The new computer’s list price was $8,000. Ramirez
accepted a trade in allowance of $500 for the old computer system, paying
$1,500 down in cash and issuing a one year, 8% note payable for the $6,000
balance owed.
Instructions;
a)
Prepare journal entries to record each of the disposal transactions. Assume that
depreciation expense on each asset has been recorded up to the date of disposal.
Thus you need not update the accumulated depreciation figures stated in the
problem.
b)
Will the gains and losses recorded in part a above affect the gross profit reported
in Ramirez’s income statement? Explain
Solution
Feb
10
Loss on Disposal of Plant Assets
Accumulated Depreciation: Office Equipment
Office Equipment
200
25,800
26,000
Scrapped office equipment; received no salvage value.
Apr
Aug
Oct
1
15
1
Cash
Notes Receivable
Accumulated Depreciation: Building
Land
Building
Gain on Sale of Plant Assets
Sold land and building for a $100,000 cash downpayment and a 5-year, 9% note for the balance.
100,000
800,000
250,000
Vehicles (new truck)
Accumulated Depreciation: Vehicles (old truck)
Vehicles (old truck)
Gain on Disposal of Plant Assets
Cash
To record trade-in of old truck on new; trade-in
allowance exceeded book value by $2,000.
39,000
18,000
Office Equipment (new computer)
Loss on Trade-in of Plant Assets
8,000
3,500
11,000
Accumulated Depreciation: Office Equip. (old computer)
50,000
550,000
550,000
26,000
2,000
29,000
Office Equipment (old computer)
Cash
Notes Payable
Acquired new computer system by trading in old
computer, paying part cash, and issuing a 1-year,
8% note payable. Recognized loss equal to book value
of old computer ($4,000) minus trade-in allowance
($500).
b.
Gains and losses on asset disposals do not affect gross profit because they are not part of the
cost of goods sold. Such gains and losses do, however, affect net income reported in a firm’s
income statement.
15,000
1,500
6,000
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