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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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What does the word capitalize mean?
A Recording lump-sum asset purchases, depreciation, and disposals Ellie Johnson 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 depreciable asset. During 2018, Ellie Johnson Associates completed the following transactions:
Jan. 1 Purchased office equipment, \(113,000. Paid \)80,000 cash and financed the remainder with a note payable. |
Apr. 1 Acquired land and communication equipment in a lump-sum purchase. Total cost was \(310,000 paid in cash. An independent appraisal valued the land at \)244,125 and the communication equipment at \(81,375. |
Sep. 1 Sold a building that cost \)520,000 (accumulated depreciation of \(285,000 through December 31 of the preceding year). Ellie Johnson Associates received \)420,000 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 \(25,000. |
Dec. 31 Recorded depreciation as follows: Communication equipment is depreciated by the straight-line method over a five-year life with zero residual value. Office equipment is depreciated using the double-declining-balance method over five years with a \)1,000 residual value. |
Record the transactions in the journal of Ellie Johnson Associate
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.
Changing an asset’s useful life and residual value Salem Hardware Consultants purchased a building for \(540,000 and depreciated it on a straight-line basis over a 40-year period. The estimated residual value is \)100,000.
After using the building for 15 years, Salem realized that wear and tear on the building would wear it out before 40 years and that the estimated residual value should be $88,000.
Starting with the 16th year, Salem began depreciating the building over a revised total life of 35 years using the new residual value. Journalize depreciation expense on the building for years 15 and 16.
Handling acquisition of patent, amortization, and change in useful life Melbourn Printers (MP) manufactures printers. Assume that MP recently paid $200,000 for a patent on a new laser printer. Although it gives legal protection for 20 years, the patent is expected to provide a competitive advantage for only eight years
Requirements
1. Assuming the straight-line method of amortization, make journal entries to record
(a) The purchase of the patent and
(b) Amortization for the first full year.
2. After using the patent for four years, MP learns at an industry trade show that another company is designing a more efficient printer. On the basis of this new information, MP decides, starting with Year 5, to amortize the remaining cost of the patent over two remaining years, giving the patent a total useful life of six years. Record amortization for Year 5.
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