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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鈥檚 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

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.

Exchanging plant assets White Corporation purchased equipment for \(22,000. White recorded total depreciation of \)19,000 on the equipment. On January 1, 2018, White traded in the equipment for new equipment, paying \(23,200 cash. The fair market value of the new equipment is \)25,100. Journalize White Corporation鈥檚 exchange of equipment. Assume the exchange had commercial substance.

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鈥檚 allocation ethical? If so, state why. If not, why not? Identify who was harmed.

Donahue Oil Incorporated has an account titled Oil and Gas Properties. Donahue paid \(6,400,000 for oil reserves holding an estimated 400,000 barrels of oil. Assume the company paid \)510,000 for additional geological tests of the property and $470,000 to prepare for drilling. During the first year, Donahue removed and sold 75,000 barrels of oil. Record all of Donahue鈥檚 transactions, including depletion for the first year.

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鈥檚

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

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

knew the parts manager, the owner鈥檚 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, 鈥淚f you had only come to

me and told me about Mike鈥檚 situation, we could have worked something out.鈥�

Requirements

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

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

3. How much discretion does a business have about accommodating

hardship situations?
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