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Chapter 9: Q. 9-7SE (page 527)

Discarding of a fully depreciated asset On June 15, 2017, Family Furniture discarded equipment that cost \(27,000, a residual value of \)0, and was fully depreciated. Journalize the disposal of the equipment

Short Answer

Expert verified

Accumulated Depreciation is not a process of valuation. Businesses do not record depreciation based onchanges in the asset’s market value.

Step by step solution

01

Meaning of Disposal on Equipment

The term disposal on equipment refers to the process of eliminating the value of the equipment from the company's books of account. This helps the company reduce the value of the asset according to its age and use in the business.

02

Journalize the disposal of the equipment

Date

Account & Explanation

Debit ($)

Credit ($)

Accumulated depreciation-Equipment

$27,000

Equipment

$27,000

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Most popular questions from this chapter

Dylan worked for a propane gas distributor as an accounting clerk in a small Midwestern

town. Last winter, his brother Mike lost his job at the machine plant. By January,

temperatures were sub-zero, and Mike had run out of money. Dylan saw that Mike’s

account was overdue, and he knew Mike needed another delivery to heat his home. He

decided to credit Mike’s account and debit the balance to the parts inventory because he

knew the parts manager, the owner’s son, was incompetent and would never notice the

extra entry. Months went by, and Dylan repeated the process until an auditor ran across

the charges by chance. When the owner fired Dylan, he said, “If you had only come to

me and told me about Mike’s situation, we could have worked something out.”

Requirements

1. What can a business like this do to prevent team member fraud of this kind?

2. What effect would Dylan’s actions have on the balance sheet? The income statement?

3. How much discretion does a business have about accommodating

hardship situations?

Accounting for intangibles

Midland States Telecom provides communication services in Iowa, Nebraska, the Dakotas, and Montana. Midland States Telecom purchased goodwill as part of the acquisition of Sheldon Wireless Enterprises, which had the following figures:

Book value of assets \( 900,000

Market value of assets 1,400,000

Market value of liabilities 530,000

Requirements

1. Journalize the entry to record Midland States Telecom’s purchase of Sheldon Wireless for \)440,000 cash plus a $660,000 note payable.

2. What special asset does Midland States Telecom’s acquisition of Sheldon Wireless identify? How should Midland States Telecom account for this asset after acquiring Sheldon Wireless? Explain in detail.

What does the asset turnover ratio measure, and how is it calculated?

What is the depreciation method that is used for tax accounting purposes? How is it different than the methods that are required by GAAP to be used for financial accounting purposes?

Western Bank & Trust purchased land and a building for the lump sum of $3,000,000. To get the maximum tax deduction, Western allocated 90% of the purchase price to the building and only 10% to the land. A more realistic allocation would have been 70% to the building and 30% to the land.

Requirements

1. Explain the tax advantage of allocating too much to the building and too little to the land.

2. Was Western’s allocation ethical? If so, state why. If not, why not? Identify who was harmed.
See all solutions

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