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Chapter 9: 14 RQ (page 488)

How is gain or loss determined when disposing of plant assets? What situation constitutes a gain? What situation constitutes a loss?

Short Answer

Expert verified

The cash received or market value of the asset received is more or less than the book value of the asset then gain or loss will arise. Gain arise when market value exceeds book value and loss occur when market value is lower than book value.

Step by step solution

01

Determination of gain or loss when disposing of plant assets

When the assets owned by the company are disposed of, then the company determines the gain or loss by comparing the amount of cash received and the market value of any asset which is received in exchange for the book value of the asset sold.

02

Situations that constitute gain and loss

The gain will occur in the case when cash received by the company or the market value of the assets received is greater than the book value of the asset.

The loss will occur in the case when cash received by the company or the market value of the assets received is less than the book value of the asset.

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Most popular questions from this chapter

Which depreciation method ignores residual value until the last year of depreciation? Why?

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

  1. Which method does Ajax Petroleum use to compute depletion?
  2. Suppose Ajax Petroleum removed and sold 500,000 barrels of oil during 2019. Journalize depletion expense for 2019.

What does the word capitalize mean?

Define property, plant, and equipment. Provide some examples.

This problem continues the Canyon Canoe Company situation from Chapter 8. Amber and Zack Wilson are continuing to review business practices. Currently, they are reviewing the company’s property, plant, and equipment and have gathered the following 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 and office furniture for 2019.

2. For each asset, determine the book value as of December 31, 2018. Then, calculate the depreciation expense for the first six months of 2019 and the book value as of June 30, 2019.

3. Prepare a partial balance sheet showing Property, Plant, and Equipment as of June 30, 2019.
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