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Chapter 10: 17Q (page 502)

Crowe Company purchased a heavy-duty truck on July 1, 2014, for \(30,000. It was estimated that it would have a useful life of 10 years and then would have a trade-in value of \)6,000. The company uses the straight-line method. It was traded on August 1, 2018, for a similar truck costing \(42,000; \)16,000 was allowed as trade-in value (also fair value) on the old truck and $26,000 was paid in cash. A comparison of expected cash flows for the trucks indicates the exchange lacks commercial substance. What is the entry to record the trade-in?

Short Answer

Expert verified

New truck debited by $42,000, accumulated depreciation debited by $9,800, loss on disposal of trucks debited by $4,200, old trucks credited by $30,000 and cash credited by $26,000 to record the trade-in.

Step by step solution

01

Calculation of accumulated depreciation and loss on disposal of trucks

AccumulatedDepreciation=OldTrucksCost-Trade-inValue脳NumberofMonths=$30,000-$6,000脳49120=$9,800

LossonDisposalofTrucks=BookValue-Trade-inValue=$20,200-$16,000=$4,200

02

Journal entry to record the Trade-in

Date

Particulars

Debit ($)

Credit ($)

New Trucks

$42,000

Accumulated depreciation

$9,800

Loss on disposal of trucks

$4,200

Old trucks

$30,000

Cash

$26,000

Being record the trade-in

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Most popular questions from this chapter

Question: Burke Company has purchased two tracts of land. One tract will be the site of its new manufacturing plant, while the other is being purchased with the hope that it will be sold in the next year at a profit. How should these two tracts of land be reported in the balance sheet?

(Nonmonetary Exchange) Dana Ashbrook Inc. has negotiated the purchase of a new piece of automatic equipment at a price of \(8,000 plus trade-in, f.o.b. factory. Dana Ashbrook Inc. paid \)8,000 cash and traded in used equipment. The used equipment had originally cost \(62,000; it had a book value of \)42,000 and a secondhand fair value of \(47,800, as indicated by recent transactions involving similar equipment. Freight and installation charges for the new equipment required a cash payment of \)1,100.

Instructions

  1. Prepare the general journal entry to record this transaction, assuming that the exchange has commercial substance.
  2. Assuming the same facts as in (a) except that fair value information for the assets exchanged is not determinable, prepare the general journal entry to record this transaction.

Question: (Classification of Costs and Interest Capitalization) On January 1, 2017, Blair Corporation purchased for \(500,000 a tract of land (site number 101) with a building. Blair paid a real estate broker鈥檚 commission of \)36,000, legal fees of \(6,000, and title guarantee insurance of \)18,000. The closing statement indicated that the land value was \(500,000 and the building value was \)100,000. Shortly after acquisition, the building was razed at a cost of \(54,000.

Blair entered into a \)3,000,000 fixed-price contract with Slatkin Builders, Inc. on March 1, 2017, for the construction of an office building on land site number 101. The building was completed and occupied on September 30, 2018. Additional construction costs were incurred as follows:

Plans, specifications, and blueprints \(21,000

Architects鈥� fees for design and supervision 82,000

The building is estimated to have a 40-year life from date of completion and will be depreciated using the 150% declining balance method.

To finance construction costs, Blair borrowed \)3,000,000 on March 1, 2017. The loan is payable in 10 annual installments of \(300,000 starting on March 1, 2018, plus interest at the rate of 10%. Blair鈥檚 weighted-average amounts of accumulated building construction expenditures were as follows.

For the period March 1 to December 31, 2017 \)1,300,000

For the period January 1 to September 30, 2018 1,900,000

Instructions

  1. Prepare a schedule that discloses the individual costs making up the balance in the land account in respect of land site number 101 as of September 30, 2018.
  2. Prepare a schedule that discloses the individual costs that should be capitalized in the office building account as of September 30, 2018. Show supporting computations in good form.

(Disposition of Assets) On April 1, 2017, Gloria Estefan Company received a condemnation award of \(430,000 cash as compensation for the forced sale of the company鈥檚 land and building, which stood in the path of a new state highway. The land and building cost \)60,000 and \(280,000, respectively, when they were acquired. At April 1, 2017, the accumulated depreciation relating to the building amounted to \)160,000. On August 1, 2017, Estafan purchased a piece of replacement property for cash. The new land cost \(90,000, and the new building cost \)400,000.

Instructions

Prepare the journal entries to record the transactions on April 1 and August 1, 2017.

(Purchase and Self-Constructed Cost of Assets) Worf Co. both purchases and constructs various equipment it uses in its operations. The following items for two different types of equipment were recorded in random order during the calendar year 2017.

Purchase

Cash paid for equipment, including sales tax of \(5,000 \)105,000

Freight and insurance cost while in transit 2,000

Cost of moving equipment into place at factory 3,100

Wage cost for technicians to test equipment 4,000

Insurance premium paid during first year of operation 1,500

on this equipment

Special plumbing fixtures required for new equipment 8,000

Repair cost incurred in first year of operations related 1,300

to this equipment

Construction

Material and purchased parts (gross cost \(200,000;

failed to take 2% cash discount) \)200,000

Imputed interest on funds used during

construction (stock financing) 14,000

Labor costs 190,000

Allocated overhead costs (fixed鈥擻(20,000;

variable鈥擻)30,000) 50,000

Profit on self-construction 30,000

Cost of installing equipment 4,400

Instructions

Compute the total cost for each of these two pieces of equipment. If an item is not capitalized as a cost of the equipment, indicate how it should be reported.
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