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Chapter 10: Q1Q (page 530)
Question: What are the major characteristics of plant assets?
Answer
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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.
Mehta Company traded a used welding machine (cost \(9,000, accumulated depreciation \)3,000) for office equipment with an estimated fair value of \(5,000. Mehta also paid \)3,000 cash in the transaction. Prepare the journal entry to record the exchange. (The exchange has commercial substance.)
(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.)
(Acquisition, Improvements, and Sale of Realty) Tonkawa Company purchased land for use as its corporate headquarters. A small factory that was on the land when it was purchased was torn down before construction of the office building began. Furthermore, a substantial amount of rock blasting and removal had to be done to the site before construction of the building foundation began. Because the office building was set back on the land far from the public road, Tonkawa Company had the contractor construct a paved road that led from the public road to the parking lot of the office building.
Three years after the office building was occupied, Tonkawa Company added four stories to the office building. The four stories had an estimated useful life of 5 years more than the remaining estimated useful life of the original office building.
Ten years later, the land and building were sold at an amount more than their net book value, and Tonkawa Company had a new office building constructed in another state for use as its new corporate headquarters.
Instructions
What accounting treatment is normally given to the following items in accounting for plant assets? (a) Additions. (b) Major repairs. (c) Improvements and replacements.
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