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Chapter 9: Q7SE (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 on changes 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 assetaccording 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

Computing first-year depreciation and book value

On January 1, 2018, Air Canadians purchased a used airplane for \(37,000,000. Air Canadians expects the plane to remain useful for five years (4,000,000 miles) and to have a residual value of \)5,000,000. The company expects the plane to be flown 1,400,000 miles during the first year.

Requirements

1. Compute Air Canadians’s first-year depreciation expense on the plane using the following methods:

a. Straight-line

b. Units-of-production

c. Double-declining-balance

2. Show the airplane’s book value at the end of the first year for all three methods.

Making a lump-sum purchase of assets Maplewood Properties bought three lots in a subdivision for a lump-sum price. An independent appraiser valued the lots as follows:

Lot

Appraised Value

1

\(144,000

2

96,000

3

240,000

Maplewood paid \)355,000 in cash. Record the purchase in the journal, identifying each lot’s cost in a separate Land account. Round decimals to two places, and use the computed percentages throughout.

Journalizing natural resource depletion

Cannon Mountain Mining paid \(462,300 for the right to extract mineral assets from a 400,000-ton deposit. In addition to the purchase price, Cannon also paid a \)900 filing fee, a \(1,800 license fee to the state of Nevada, and \)55,000 for a geological survey of the property. Because Cannon purchased the rights to the minerals only and did not purchase the land, it expects the asset to have zero residual value. During the first year, Cannon removed and sold 50,000 tons of the minerals. Make journal entries to record (a) purchase of the minerals (debit Minerals), (b) payment of fees and other costs, and (c) depletion for the first year.

How does a business decide which depreciation method is best to use?

How is discarding of a plant asset different from selling a plant asset?
See all solutions

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