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Chapter 10: 8BE (page 502)

Navajo Corporation traded a used truck (cost \(20,000, accumulated depreciation \)18,000) for a small computer with a fair value of \(3,300. Navajo also paid \)500 in the transaction. Prepare the journal entry to record the exchange. (The exchange has commercial substance.)

Short Answer

Expert verified

Equipment is debited by $3,300, accumulated depreciation is debited by $18,000, trucks are credited by $20,000, cash is credited by $500 and gain on disposal of trucks is debited by $800 to record the exchange of trucks for equipment.

Step by step solution

01

Calculation of gain on disposal of trucks

GainonDisposalofTrucks=Equipment+AccumulatedDepreciation-Truck+Cash=$3,300+$18,000-$20,000+$500=$800

02

Journal entry of purchase of truck

Date

Particulars

Debit ($)

Credit ($)

Equipment

$3,300

Accumulated depreciation

$18,000

To Trucks

$20,000

To Cash

$500

To Gain on disposal of truck

$800

To record the exchange of trucks

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Most popular questions from this chapter

(Analysis of Subsequent Expenditures) The following transactions occurred during 2017. Assume that depreciation of 10% per year is charged on all machinery and 5% per year on buildings, on a straight-line basis, with no estimated salvage value. Depreciation is charged for a full year on all fixed assets acquired during the year, and no depreciation is charged on fixed assets disposed of during the year.

Jan. 30 A building that cost \(132,000 in 2000 is torn down to make room for a

New building. The wrecking contractor was paid \)5,100 and was

permitted to keep all materials salvaged.

Mar. 10 Machinery that was purchased in 2010 for \(16,000 is sold for \)2,900

cash, f.o.b. purchaser鈥檚 plant. Freight of \(300 is paid on the sale of this

machinery.

Mar. 20 A gear breaks on a machine that cost \)9,000 in 2009. The gear is

replaced at a cost of \(2,000. The replacement does not extend the

useful life of the machine but does make the machine more efficient.

May 18 A special base installed for a machine in 2011 when the machine was

purchased has to be replaced at a cost of \)5,500 because of defective

workmanship on the original base. The cost of the machinery was

\(14,200 in 2011. The cost of the base was \)3,500, and this amount was

charged to the Machinery account in 2011.

June 23 One of the buildings is repainted at a cost of $6,900. It had not been

painted since it was constructed in 2013.

Instructions

Prepare general journal entries for the transactions. (Round to the nearest dollar.)

(Purchase of Equipment with Zero-Interest-Bearing Debt) Chippewas Inc. has decided to purchase equipment from Central Michigan Industries on January 2, 2017, to expand its production capacity to meet customers鈥� demand for its product. Chippewas issues an \(800,000, 5-year, zero-interest-bearing note to Central Michigan for the new equipment when the prevailing market rate of interest for obligations of this nature is 12%. The company will pay off the note in five \)160,000 installments due at the end of each year over the life of the note.

Instructions (Round to nearest dollar in all computations.)

  1. Prepare the journal entry(ies) at the date of purchase.
  2. Prepare the journal entry(ies) at the end of the first year to record the payment and interest, assuming that the company employs the effective-interest method.
  3. Prepare the journal entry(ies) at the end of the second year to record the payment and interest.
  4. Assuming that the equipment had a 10-year life and no salvage value, prepare the journal entry necessary to record depreciation in the first year. (Straight-line depreciation is employed.)

(Nonmonetary Exchange) Carlos Arruza Company exchanged equipment used in its manufacturing operations plus \(3,000 in cash for similar equipment used in the operations of Tony LoBianco Company. The following information pertains to the exchange.

Carlos Arruza Co.

Tony LoBianco Co.

Equipment (cost)

\)28,000

$28,000

Accumulated depreciation

19,000

10,000

Fair value of equipment

12,500

15,500

Cash given up

3,000

Instructions

  1. Prepare the journal entries to record the exchange on the books of both companies. Assume that the exchange lacks commercial substance.
  2. Prepare the journal entries to record the exchange on the books of both companies. Assume that the exchange has commercial substance.

(Purchase of Computer with Zero-Interest-Bearing Debt) Cardinals Corporation purchased a computer on December 31, 2016, for \(105,000, paying \)30,000 down and agreeing to pay the balance in five equal installments of $15,000 payable each December 31 beginning in 2017. An assumed interest rate of 10% is implicit in the purchase price.

Instructions

(Round to two decimal places.)

  1. Prepare the journal entry(ies) at the date of purchase.
  2. Prepare the journal entry(ies) at December 31, 2017, to record the payment and interest (effective-interest method employed).
  3. Prepare the journal entry(ies) at December 31, 2018, to record the payment and interest (effective-interest method employed).

(Capitalization of Interest) On July 31, 2017, Amsterdam Company engaged Minsk Tooling Company to construct a special-purpose piece of factory machinery. Construction was begun immediately and was completed on November 1, 2017. To help finance construction, on July 31 Amsterdam issued a \(300,000, 3-year, 12% note payable at Netherlands National Bank, on which interest is payable each July 31. \)200,000 of the proceeds of the note was paid to Minsk on July 31. The remainder of the proceeds was temporarily invested in short-term marketable securities (trading securities) at 10% until November 1. On November 1, Amsterdam made a final \(100,000 payment to Minsk. Other than the note to Netherlands, Amsterdam鈥檚 only outstanding liability at December 31, 2017, is a \)30,000, 8%, 6-year note payable, dated January 1, 2014, on which interest is payable each December 31.

Instructions

(a) Calculate the interest revenue, weighted-average accumulated expenditures, avoidable interest, and total interest cost to be capitalized during 2017. (Round all computations to the nearest dollar.)

(b) Prepare the journal entries needed on the books of Amsterdam Company at each of the following dates.

(1) July 31, 2017.

(2) November 1, 2017.

(3) December 31, 2017.
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