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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 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

This problem continues the Canyon Canoe Company situation from Chapter 8. Amber and Zack Wilson are continuing to review business practices. Currently, theyare reviewing the company鈥檚 property, plant, and equipment and have gathered thefollowing information:

Asset

Acquisition Date

Cost

Estimated Life

Estimated Residual value

Depreciation Method

Monthly Depreciation Expense

Canoes

Nov. 3, 2018

\(4,800

4 Years

\) 0

SL

$100

Land

Dec 1, 2018

85,000

n/a

Building

Dec 1, 2018

35,000

5 Years

5,000

SL

500

Canoes

Dec 2, 2018

7,200

4 Years

0

SL

150

Computer

Mar. 2, 2019

3,600

3 Years

300

DDB

Office Furniture

MAR. 3, 2019

3,000

5 Years

600

SL

*SL = Straight@line; DDB = Double@declining@balance

Requirements

1. Calculate the amount of monthly depreciation expense for the computer andoffice furniture for 2019.

2. For each asset, determine the book value as of December 31, 2018. Then, calculatethe depreciation expense for the first six months of 2019 and the book valueas of June 30, 2019.

3. Prepare a partial balance sheet showing Property, Plant, and Equipment as ofJune 30, 2019.

Question: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.

Amplify Petroleum holds huge reserves of oil. Assume that at the end of 2017, Amplify Petroleum鈥檚 cost of oil reserves totaled $80,000,000, representing 100,000,000 barrels of oil. Suppose Amplify Petroleum removed and sold 20,000,000 barrels of oil during 2018. Journalize depletion expense for 2018.

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鈥檚 purchase of Sheldon Wireless for \)440,000 cash plus a $660,000 note payable.

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

Budget Banners pays \(200,000 cash for a group purchase of land, building, and equipment. At the time of acquisition, the land has a market value of \)22,000, the building \(187,000, and the equipment \)11,000. Journalize the lump-sum purchase.
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