/*! This file is auto-generated */ .wp-block-button__link{color:#fff;background-color:#32373c;border-radius:9999px;box-shadow:none;text-decoration:none;padding:calc(.667em + 2px) calc(1.333em + 2px);font-size:1.125em}.wp-block-file__button{background:#32373c;color:#fff;text-decoration:none} Q11BE. Cheng Company traded a used truc... [FREE SOLUTION] | 91影视

91影视

Log out

Learning Materials

Features

Discover

Chapter 10: Q11BE. (page 532)

Cheng Company traded a used truck for a new truck. The used truck cost \(30,000 and has accumulated depreciation of \)27,000. The new truck is worth \(37,000. Cheng also made a cash payment of \)36,000. Prepare Cheng鈥檚 entry to record the exchange. (The exchange lacks commercial substance.)

Short Answer

Expert verified

The new truck would be recorded at$39,000 for deferring loss of $2,000.

Step by step solution

01

Computation of fair value of the old truck and gain/loss on exchange

Fairvalueoftheoldtruck=Finalvalueofthenewtruck-Cashpaid=$37,000-$36,000=$1,000

Gain/Lossonexchange=Fairvalueofthetruck-Bookvalueofoldtruck=$1,000-($30,000-$27,000)=$1,000-$3,000=$2,000

02

Journal entry

As the exchange lacks commercial substance, the loss would be deferred and the basis of the new truck would be as follows:

Basisofnewtruck=Fairvalueofnewtruck+DefferedLoss=$37,000+$2000=$39,000

Journal entry

Date

Description

Debit

Credit

New Truck

$39,000

Accumulated Depreciation

$27,000

Old Truck

$30,000

Cash Paid

$36,000

Being old truck exchanged for a new truck having no commercial substance

Unlock Step-by-Step Solutions & Ace Your Exams!

  • Full Textbook Solutions

    Get detailed explanations and key concepts

  • Unlimited Al creation

    Al flashcards, explanations, exams and more...

  • Ads-free access

    To over 500 millions flashcards

  • Money-back guarantee

    We refund you if you fail your exam.

Over 30 million students worldwide already upgrade their learning with 91影视!

One App. One Place for Learning.

All the tools & learning materials you need for study success - in one app.

Get started for free

Most popular questions from this chapter

Question: What are the major characteristics of plant assets?

To what extent do you consider the following items to be proper costs of the fixed asset? Give reasons for your opinions.

  1. Overhead of a business that builds its own equipment.
  2. Cash discounts on purchases of equipment.
  3. Interest paid during the construction of a building.
  4. Cost of a safety device installed on a machine.
  5. Freight on equipment returned before installation, for replacement by other equipment of greater capacity.
  6. Cost of moving machinery to a new location.
  7. Cost of plywood partitions erected as part of the remodeling of the office.
  8. Replastering of a section of the building.
  9. Cost of a new motor for one of the trucks.

Question: Discuss the basic accounting problem that arises in handling each of the following situations. (a) Assets purchased by issuance of common stock. (b) Acquisition of plant assets by gift or donation. (c) Purchase of a plant asset subject to a cash discount. (d) Assets purchased on a long-term credit basis. (e) A group of assets acquired for a lump sum. (f) An asset traded in or exchanged for another asset.

Question: (Classification of Acquisition and Other Asset Costs) At December 31, 2016, certain accounts included in the property, plant, and equipment section of Reagan Company鈥檚 balance sheet had the following balances.

Land

\(230,000

Buildings

890,000

Leasehold improvements

660,000

Equipment

875,000

During 2017, the following transactions occurred.

  1. Land site number 621 was acquired for \)850,000. In addition, to acquire the land Reagan paid a \(51,000 commission to a real estate agent. Costs of \)35,000 were incurred to clear the land. During the course of clearing the land, timber and gravel were recovered and sold for \(13,000.
  2. A second tract of land (site number 622) with a building was acquired for \)420,000. The closing statement indicated that the land value was \(300,000 and the building value was \)120,000. Shortly after acquisition, the building was demolished at a cost of \(41,000. A new building was constructed for \)330,000 plus the following costs.

Excavation fees

\(38,000

Architectural design fees

11,000

Building permit fee

2,500

Imputed interest on funds used

during construction (stock financing)

8,500

The building was completed and occupied on September 30, 2017.

  1. A third tract of land (site number 623) was acquired for \)650,000 and was put on the market for resale.
  2. During December 2017, costs of \(89,000 were incurred to improve leased office space. The related lease will terminate on December 31, 2019, and is not expected to be renewed. (Hint: Leasehold improvements should be handled in the same manner as land improvements.)
  3. A group of new machines was purchased under a royalty agreement that provides for payment of royalties based on units of production for the machines. The invoice price of the machines was \)87,000, freight costs were \(3,300, installation costs were \)2,400, and royalty payments for 2017 were $17,500.

Instructions

a, Prepare a detailed analysis of the changes in each of the following balance sheet accounts for 2017.

Land Leasehold Improvements

Buildings Equipment

Disregard the related accumulated depreciation accounts.

b, List the items in the situation that were not used to determine the answer to (a) above, and indicate where, or if, these items should be included in Reagan鈥檚 financial statements.

(Accounting for Self-Constructed Assets) Troopers Medical Labs, Inc., began operations 5 years ago producing stetrics, a new type of instrument it hoped to sell to doctors, dentists, and hospitals. The demand for stetrics far exceeded initial expectations, and the company was unable to produce enough stetrics to meet demand.

The company was manufacturing its product on equipment that it built at the start of its operations. To meet demand, more efficient equipment was needed. The company decided to design and build the equipment, because the equipment currently available on the market was unsuitable for producing stetrics.

In 2017, a section of the plant was devoted to development of the new equipment and a special staff was hired. Within 6 months, a machine developed at a cost of \(714,000 increased production dramatically and reduced labor costs substantially. Elated by the success of the new machine, the company built three more machines of the same type at a cost of \)441,000 each.

Instructions

a. In general, what costs should be capitalized for self-constructed equipment?

b. Discuss the propriety of including in the capitalized cost of self-constructed assets:

(1) The increase in overhead caused by the self-construction of fixed assets.

(2) A proportionate share of overhead on the same basis as that applied to goods manufactured for sale.

c. Discuss the proper accounting treatment of the \(273,000 (\)714,000 鈭� $441,000) by which the cost of the first machine exceeded the cost of the subsequent machines. This additional cost should not be considered research and development costs.
See all solutions

Recommended explanations on Business Studies Textbooks

International Business

Read Explanation

Managerial Economics

Read Explanation

Corporate Finance

Read Explanation

Finance Literacy (Business Studies)

Read Explanation

Family Business

Read Explanation

Startups

Read Explanation
View all explanations

What do you think about this solution?

We value your feedback to improve our textbook solutions.

Study anywhere. Anytime. Across all devices.