Log out Go to App
Go to App

Learning Materials

Features

Discover

Chapter 9: Q15SE (page 528)

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.

Short Answer

Expert verified

The business entity will generate a gain of $900 on the exchange of assets.

Step by step solution

01

Definition of Plant Asset

Plant assets can be defined as all those assets that are employed in the business for their long-term use. It includes the machine acquired for the production of goods.

02

Calculation of exchanging plant assets

Particulars

$Amount

$ Amount

Market Value of asset

$3,900

Less: Book Value of Asset exchanged

$900

Cash paid

2100

(3000)

Gain

$900

03

Journalizing in the book of Micron Precision.

Date

Particulars

$ Debit

$ Credit

1 Jan 2018

New equipment

3,900

Accumulated depreciation

1,600

Cash

2,100

Old equipment

2,500

Gain on sale

900

(To record the exchange of assets)

Unlock Step-by-Step Solutions & Ace Your Exams!

  • Full Textbook Solutions

    Get detailed explanations and key concepts

  • Unlimited Al creation

    Al flashcards, explanations, exams and more...

  • Ads-free access

    To over 500 millions flashcards

  • Money-back guarantee

    We refund you if you fail your exam.

Start your free trial

Over 30 million students worldwide already upgrade their learning with Vaia!

One App. One Place for Learning.

All the tools & learning materials you need for study success - in one app.

Get started for free

Most popular questions from this chapter

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

What is the difference between capital expenditure and a revenue expenditure? Give an example of each.

What is a lump-sum purchase, and how is it accounted for?

Jim Reed manages a fleet of utility trucks for a rural county government. He’s been in his job for 30 years, and he knows where the angles are. He makes sure that when new trucks are purchased, the residual value is set as low as possible. Then, when they become fully depreciated, they are sold off by the county at residual value. Jim makes sure his buddies in the construction business are first in line for the bargain sales, and they make sure he gets a little something back. Recently, a new county commissioner was elected with vows to cut expenses for the taxpayers. Unlike other commissioners, this man has a business degree, and he is coming to visit Jim tomorrow.

Requirements

1. When a business sells a fully depreciated asset for its residual value, is a gain or loss recognized?

2. How do businesses determine what residual values to use for their various assets? Are there “hard and fast” rules for residual values?

3. How would an organization prevent the kind of fraud depicted here?

Making a lump-sum asset purchase

Concord Pet Care Clinic paid \(210,000 for a group purchase of land, building, and equipment. At the time of the acquisition, the land had a market value of \)110,000, the building \(88,000, and the equipment \)22,000. Journalize the lump-sum purchase of the three assets for a total cost of $210,000, the amount for which the business signed a note payable.
See all solutions

Recommended explanations on Business Studies Textbooks

Influences On Business

Read Explanation

Introduction to Business

Read Explanation

Business Operations

Read Explanation

Strategic Analysis

Read Explanation

Managerial Economics

Read Explanation

Strategic Direction

Read Explanation
View all explanations

What do you think about this solution?

We value your feedback to improve our textbook solutions.

Study anywhere. Anytime. Across all devices.

Sign-up for free