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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

Neville Enterprises has a number of fully depreciated assets that are still being used in the main operations of the business. Because the assets are fully depreciated, the president of the company decides not to show them on the balance sheet or disclose this information in the notes. Evaluate this procedure

(Acquisition Costs of Trucks) Kelly Clarkson Corporation operates a retail computer store. To improve delivery services to customers, the company purchases four new trucks on April 1, 2017. The terms of acquisition for each truck are described below.

  1. Truck #1 has a list price of \(15,000 and is acquired for a cash payment of \)13,900.
  2. Truck #2 has a list price of \(16,000 and is acquired for a down payment of \)2,000 cash and a zero-interest-bearing note with a face amount of \(14,000. The note is due April 1, 2018. Clarkson would normally have to pay interest at a rate of 10% for such a borrowing, and the dealership has an incremental borrowing rate of 8%.
  3. Truck #3 has a list price of \)16,000. It is acquired in exchange for a computer system that Clarkson carries in inventory. The computer system cost \(12,000 and is normally sold by Clarkson for \)15,200. Clarkson uses a perpetual inventory system.
  4. Truck #4 has a list price of \(14,000. It is acquired in exchange for 1,000 shares of common stock in Clarkson Corporation. The stock has a par value per share of \)10 and a market price of $13 per share.

Instructions

Prepare the appropriate journal entries for the above transactions for Clarkson Corporation.

(Nonmonetary Exchanges) Holyfield Corporation wishes to exchange a machine used in its operations. Holyfield has received the following offers from other companies in the industry.

  1. Dorsett Company offered to exchange a similar machine plus \(23,000. (The exchange has commercial substance for both parties.)
  2. Winston Company offered to exchange a similar machine. (The exchange lacks commercial substance for both parties.)
  3. Liston Company offered to exchange a similar machine, but wanted \)3,000 in addition to Holyfield鈥檚 machine. (The exchange has commercial substance for both parties.)

In addition, Holyfield contacted Greeley Corporation, a dealer in machines. To obtain a new machine, Holyfield must pay \(93,000 in addition to trading in its old machine.

Holyfield

Dorsett

Winston

Liston

Greeley

Machine cost

\)160,000

\(120,000

\)152,000

\(160,000

\)130,000

Accumulated depreciation

60,000

45,000

71,000

75,000

鈥�0鈥�

Fair value

92,000

69,000

92,000

95,000

185,000

Instructions

For each of the four independent situations, prepare the journal entries to record the exchange on the books of each company.

Question: Name the items, in addition to the amount paid to the former owner or contractor, that may properly be included as part of the acquisition cost of the following plant assets. (a) Land. (b) Machinery and equipment. (c) Buildings

Question: When should debt security be classified as held-to-maturity?
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