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Chapter 9: 13RQ (page 488)
How is discarding of a plant asset different from selling a plant asset?
The discarding of a plant asset is disposing of an asset in exchange for no cash but on the other hand selling of a plant is disposing of an asset in exchange for cash.
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Recording partial-year depreciation and sale of an asset On January 2, 2017, Comfy Clothing Consignments purchased showroom fixtures for \(17,000 cash, expecting the fixtures to remain in service for five years. Comfy has depreciated the fixtures on a double-declining-balance basis, with zero residual value. On October 31, 2018, Comfy sold the fixtures for \)7,600 cash. Record both depreciation expense for 2018 and sale of the fixtures on October 31, 2018.
Whitney Plumb Associates surveys American eating habits. The company’s accounts include Land, Buildings, Office Equipment, and Communication Equipment, with a separate Accumulated Depreciation account for each asset. During 2018, Whitney Plumb completed the following transactions:
Jan. 1 Purchased office equipment, \(117,000. Paid \)77,000 cash and financed the remainder with a note payable.
Apr. 1 Acquired land and communication equipment in a lump-sum purchase. Total cost was \(350,000 paid in cash. An independent appraisal valued the land at \)275,625 and the communication equipment at \(91,875.
Sep. 1 Sold a building that cost \)520,000 (accumulated depreciation of \(285,000 through December 31 of the preceding year). Whitney Plumb received \)390,000 cash from the sale of the building. Depreciation is computed on a straight-line basis. The building has a 40-year useful life and a residual value of \(25,000.
Dec. 31 Recorded depreciation as follows:
Communication equipment is depreciated by the straight-line method over a five-year life with zero residual value. Office equipment is depreciated using the double-declining-balance method over five years with a \)2,000 residual value.
Record the transactions in the journal of Whitney Plumb Associates.
Accounting for depletion of natural resources Ajax Petroleum holds huge reserves of oil assets. Assume that at the end of 2018, Ajax Petroleum’s cost of oil reserves totaled $27,000,000, representing 3,000,000 barrels of oil.
Requirements
This problem continues the Canyon Canoe Company situation from Chapter 8. Amber and Zack Wilson are continuing to review business practices. Currently, theyare reviewing the company’s property, plant, and equipment and have gathered thefollowing information:
Asset | Acquisition Date | Cost | Estimated Life | Estimated Residual value | Depreciation Method | Monthly Depreciation Expense |
Canoes | Nov. 3, 2018 | \(4,800 | 4 Years | \) 0 | SL | $100 |
Land | Dec 1, 2018 | 85,000 | n/a | |||
Building | Dec 1, 2018 | 35,000 | 5 Years | 5,000 | SL | 500 |
Canoes | Dec 2, 2018 | 7,200 | 4 Years | 0 | SL | 150 |
Computer | Mar. 2, 2019 | 3,600 | 3 Years | 300 | DDB | |
Office Furniture | MAR. 3, 2019 | 3,000 | 5 Years | 600 | SL |
*SL = Straight@line; DDB = Double@declining@balance
Requirements
1. Calculate the amount of monthly depreciation expense for the computer andoffice furniture for 2019.
2. For each asset, determine the book value as of December 31, 2018. Then, calculatethe depreciation expense for the first six months of 2019 and the book valueas of June 30, 2019.
3. Prepare a partial balance sheet showing Property, Plant, and Equipment as ofJune 30, 2019.
What does the asset turnover ratio measure, and how is it calculated?
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