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Chapter 19: Q-9-28E (page 1075)

Question: Exchanging assets—two situations Partner Bank recently traded in office fixtures. Here are the facts

Old fixtures:

New Fixtures

Cost, \(91,000

Cash paid, \)110,000

Accumulated depreciation, \(68,000

Market value, \)133,000

Requirements

1. Record Partner Bank’s trade-in of old fixtures for new ones. Assume the exchange had commercial substance.

2. Now let’s change one fact. Partner Bank feels compelled to do business with Elm Furniture, a bank customer, even though the bank can get the fixtures elsewhere at a better price. Partner Bank is aware that the new fixtures’ market value is only $126,000. Record the trade-in. Assume the exchange had commercial substance

Short Answer

Expert verified

Answer

The business entity will generate a loss of $7,000 in the case where the market value of the new fixture is $126,000.

Step by step solution

01

Definition of Market Value

The value at which an asset is offered to the buyer in the marketplace is known as market value. Such value is decided by the market factors in which the product is offered for sale.

02

Recording exchange of asset

Date

Accounts and Explanation

Debit $

Credit $

New fixture

$133,000

Accumulated depreciation - old fixture

$68,000

Cash

$110,000

Old fixture

$91,000

(To record the exchange of asset)

Working note:

Particulars

Amount $

Amount $

Market Value of Asset Received

$133,000

Less: Book Value of Asset exchanged

$23,000

Less: Cash Paid

110,000

(133,000)

Gain

$0

03

Recording exchange of asset

Date

Accounts and Explanation

Debit $

Credit $

New fixture

126,000

Accumulated depreciation - old fixture

68,000

Loss on exchange

7,000

Cash

110,000

Old fixture

91,000

(To record the exchange of asset)

Working note:

Particulars

Amount $

Amount $

Market Value of Asset Received

$126,000

Less: Book Value of Asset exchanged

$23,000

Less: Cash Paid

110,000

(133,000)

Loss

($7,000)

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Most popular questions from this chapter

PetSmart, Inc. is a large specialty pet retailer of services and solutions for the needs of pets. In addition to selling pet food and pet products, PetSmart also offers dog grooming services including bath, nail trim, teeth brushing, aromatherapy to reduce everyday stress, and nail polish and stickers. PetSmart even offers a Top Dog service that includes a premium shampoo, milk bath conditioner, scented cologne spritz, teeth brushing, and bandana or bow.

Assume PetSmart, Inc. expects to incur \(380,000 of indirect costs this year. The company allocates indirect costs based on the following activities:

___________________________________________________________________

Activity Estimated Allocation Base Estimated Quantity

Cost of Allocation

Base____

Admission \) 60,000 Number of admissions 20,000

Cleaning 240,000 Cleaning direct labor hours 100,000

Grooming 80,000 Grooming direct labor hours 4,000

Total indirect costs \( 380,000________________________________________

Requirements.

2. Assume a customer brought in Sophie, a beagle, for Top Dog service. PetSmart used the following resources:

_____________________________________________

Allocation Base Sophie, Beagle

Number of admissions 1

Cleaning direct labor hours 1

Grooming direct labor hours 0.5______

Determine the total cost of the Top Dog service for Sophie assuming the total direct materials cost was \)3.50 and the total direct labor cost was $12 per DLHr.

The Oakman Company manufactures products in two departments: Mixing and Packaging. The company allocates manufacturing overhead using a single plantwide rate with direct labor hours as the allocation base. Estimated overhead costs for the year are $810,000, and estimated direct labor hours are 360,000. In October, the company incurred 20,000 direct labor hours.

Requirements

2. Determine the amount of overhead allocated in October.

Refer to Short Exercise S19-8. Spectrum Corp. desires a 25% target gross profit after covering all product costs. Considering the total product costs assigned to the Products C and D in Short Exercise S19-8, what would Spectrum have to charge the customer to achieve that gross profit? Round to two decimal places.

How can ABM be used by service companies?

Refer to Exercise E19-20. For 2019, Eason’s managers have decided to use the same indirect manufacturing costs per wheel rim that they computed in 2018 using activity based n costing. In addition to the unit indirect manufacturing costs, the following data are expected for the company’s standard and deluxe models for 2019:

Standard Deluxe

Sales price \( 800.00 \) 940.00

Direct materials 31.00 48.00

Direct labor 45.00 52.00

Because of limited machine hour capacity, Eason can produce either2,000 standard rims or2,000 deluxe rims.

Requirements

2. If the managers rely on the single plantwide overhead allocation rate cost data, which model will they produce?
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