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Chapter 9: 22E (page 488)

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.

Short Answer

Expert verified

A business entity will generate a gain of $800 on the furniture sale.

Step by step solution

01

Definition of Depreciation

A company charged the expenses to report the decline in the value of the fixed assets acquired by the company is known as depreciation expenses.

02

Recording journal entries

Date

Accounts and Explanation

Debit $

Credit $

31 Oct 2018

Depreciation expenses

$3,400

Accumulated depreciation

$3,400

31 Oct 2018

Cash

$7,600

Accumulated depreciation

$10,200

Gain on sale

$800

Furniture and fixture

$17,000

03

Recording journal entries

Working note:

Depreciationrate=100%Usefullife×2=100%5×2=40%

Year

Depreciation base

X

Depreciation rate

=

Depreciation expenses

2017

$17,000

X

40%

=

$6,800

2018

$10,200

X

40%

=

$3,400

Total

=

$10,200

Note: Depreciation for year 2018 is calculated for 10 months. Therefore, it is multiplied by (10/12)

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Most popular questions from this chapter

Accounting for an intangible asset On October 1, 2018, Modern Company purchased a patent for $153,600 cash. Although the patent gives legal protection for 20 years, the patent is expected to be used for only eight years.

Requirements

1. Journalize the purchase of the patent.

2. Journalize the amortization expense for the year ended December 31, 2018. Assume straight-line amortization.

Determining asset cost and recording partial-year depreciation, straight-line Discount Parking, near an airport, incurred the following costs to acquire land, make land improvements, and construct and furnish a small building:

a. Purchase price of three acres of land $ 80,000

b. Delinquent real estate taxes on the land to be paid by Discount Parking 6,300

c. Additional dirt and earthmoving 9,000

d. Title insurance on the land acquisition 3,200

e. Fence around the boundary of the property 9,600

f. Building permits for the building 1,000

g. Architect’s fee for the design of the building 20,700

h. Signs near the front of the property 9,300

i. Materials used to construct the building 215,000

j. Labor to construct the building 175,000

k. Interest cost on the construction loan for the building 9,400

l. Parking lots on the property 28,500

m. Lights for the parking lots 11,200

n. Salary of construction supervisor (80% to building; 20% to parking lot and concrete walks) 50,000

o. Furniture 11,200

p. Transportation of furniture from seller to the building 2,200

q. Additional fencing 6,600

Discount Parking depreciates land improvements over 15 years, buildings over 40 years, and furniture over 10 years, all on a straight-line basis with zero residual value’s

Requirements

1. Set up columns for Land, Land Improvements, Building, and Furniture. Show how to account for each cost by listing the cost under the correct account. Determine the total cost of each asset.

2. All construction was complete and the assets were placed in service on October 1. Record partial-year depreciation expense for the year ended December 31. Round to the nearest dollar

Exchanging plant assets Micron Precision, Inc. purchased a computer for \(2,500, debiting Computer Equipment. During 2016 and 2017, Micron Precision, Inc. recorded total depreciation of \)1,600 on the computer. On January 1, 2018, Micron Precision, Inc. traded in the computer for a new one, paying \(2,100 cash. The fair market value of the new computer is \)3,900. Journalize Micron Precision, Inc.’s exchange of computers. Assume the exchange had commercial substance.

Question:In 150 words or fewer, explain the different methods that can be used to calculate depreciation. Your explanation should include how to calculate depreciation expense using each method.

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.
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