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Chapter 9: 4RQ (page 525)
What does the word capitalize mean?
Capitalized means that an asset account was debited (increased) because the company acquired an asset.
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Recording partial-year depreciation and sale of an asset On January 2, 2016, Pet Spa purchased fixtures for \(37,800 cash, expecting the fixtures to remain in service for six years. Pet Spa has depreciated the fixtures on a straight-line basis, with \)9,000 residual value. On May 31, 2018, Pet Spa sold the fixtures for $24,200 cash. Record both depreciation expense for 2018 and sale of the fixtures on May 31, 2018
Journalizing partial-year depreciation and asset disposals and exchanges.
During 2018, Mora Corporation completed the following transactions:
Jan. 1 Traded in old office equipment with book value of \(55,000 (cost of \)127,000 and accumulated depreciation of \(72,000) for new equipment. Mora also paid \)70,000 in cash. Fair value of new equipment is \(133,000. Assume the exchange had commercial substance.
Apr. 1 Sold equipment that cost \)18,000 (accumulated depreciation of \(8,000 through December 31 of the preceding year). Mora received \)6,100 cash from the sale of the equipment. Depreciation is computed on a straightline basis. The equipment has a five-year useful life and a residual value of \(0. Dec. 31 Recorded depreciation as follows:
Office equipment is depreciated using the double-declining-balance method over four years with a \)9,000 residual value.
Record the transactions in the journal of Mora Corporation.
What does it mean if an exchange of plant assets has commercial substance? Are gains and losses recorded on the books because of the exchange?
Counselors of Atlanta purchased equipment on January 1, 2017, for \(20,000. Counselors of Atlanta expected the equipment to last for four years and have a residual value of \)2,000. Suppose Counselors of Atlanta sold the equipment for $8,000 on December 31, 2019, after using the equipment for three full years. Assume depreciation for 2019 has been recorded. Journalize the sale of the equipment, assuming straight-line depreciation was used.
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.
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