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Chapter 10: 23Q (page 532)

What are the general rules for how gains or losses on retirement of plant assets should be reported in income?

Short Answer

Expert verified

Gain or loss on retirement of plant assets shown in income statement along with gain or loss from normal items.

Step by step solution

01

Plant assets

Plant assets are the fixed assets that the company acquires for use in business operations. Plant assets did not resell. Plant assets are tangible.

02

Disclosure of fully depreciated assets

The company shows all the gains or losses in the company's income statement. Gains are recognized as benefits, and losses are recognized as losses for the company. Gain or loss from plant asset retirement is shown as normal gain or loss.

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Most popular questions from this chapter

Question: The Buildings account of Postera Inc. includes the following items that were used in determining the basis for depreciating the cost of a building.

Organization and promotion expenses. (b) Architect’s fees. (c) Interest and taxes during construction. (d) Interest revenue on investments held to fund construction of a building. Do you agree with these charges? If not, how would you deal with each of the items above in the corporation’s books and in its annual financial statements?

Question: Stan Ott is evaluating two recent transactions involving exchanges of equipment. In one case, the exchange has commercial substance. In the second situation, the exchange lacks commercial substance. Explain to Stan the differences in accounting for these two situations.

Question: (Entries for Equipment Acquisitions) Jane Geddes Engineering Corporation purchased conveyor equipment with a list price of \(10,000. Presented below are three independent cases related to the equipment. (Round to the nearest dollar.)

  1. Geddes paid cash for the equipment 8 days after the purchase. The vendor’s credit terms are 2/10, n/30. Assume that equipment purchases are initially recorded gross.
  2. Geddes traded in equipment with a book value of \)2,000 (initial cost \(8,000), and paid \)9,500 in cash one month after the purchase. The old equipment could have been sold for \(400 at the date of trade. (The exchange has commercial substance.)
  3. Geddes gave the vendor a \)10,800 zero-interest-bearing note for the equipment on the date of purchase. The note was due in one year and was paid on time. Assume that the effective-interest rate in the market was 9%.

Instructions

Prepare the general journal entries required to record the acquisition and payment in each of the independent cases above.

(Treatment of Various Costs) Ben Sisko Supply Company, a newly formed corporation, incurred the following expenditures related to Land, to Buildings, and to Machinery and Equipment.

Abstract company’s fee for title search

\( 520

Architect’s fees

3,170

Cash paid for land and dilapidated building thereon

87,000

Removal of old building \)20,000

Less: Salvage 5,500

14,500

Interest on short-term loans during construction

7,400

Excavation before construction for basement

19,000

Machinery purchased (subject to 2% cash

discount, which was not taken)

55,000

Freight on machinery purchased

1,340

Storage charges on machinery, necessitated

by noncompletion of building when

machinery was delivered

2,180

New building constructed (building

construction took 6 months from date

of purchase of land and old building)

485,000

Assessment by city for drainage project

1,600

Hauling charges for delivery of machinery

from storage to new building

620

Installation of machinery

2,000

Trees, shrubs, and other landscaping

after completion of building

5,400

Instructions

Determine the amounts that should be debited to Land, to Buildings, and to Machinery and Equipment. Assume the benefits of capitalizing interest during construction exceed the cost of implementation. Indicate how any costs not debited to these accounts should be recorded.

Ottawa Corporation owns machinery that cost \(20,000 when purchased on July 1, 2014. Depreciation has been recorded at a rate of \)2,400 per year, resulting in a balance in accumulated depreciation of \(8,400 at December 31, 2017. The machinery is sold on September 1, 2018, for \)10,500. Prepare journal entries to (a) update depreciation for 2018 and (b) record the sale.
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