Plant Asset Disposals, Natural Resources, and Intangible Assets Practice Problems
Demonstration problem
Solution to Demonstration problems
Solution to demonstration problem a
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DARTON COMPANY |
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a. |
Schedule to Compute Book Value |
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2010 July 1 |
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Cost |
$ 36,000 |
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Less accumulated depreciation: |
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($35,000 - $1,800)/6 years= $5,700 per year 19,950 |
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$5,700 X 31 1/2 years = $19,950 |
$ 16,050 |
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Book value |
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b. |
(1.) |
Cash (+A) |
12,000 |
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Accumulated Depreciation - Machinery |
19,950 |
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(+A) |
4,050 |
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Loss from Disposal of Plant Assets (-SE) |
36,000 |
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Machinery (-A) |
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To record the sale of machinery at loss. |
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(2) |
Cash (+A) |
18,000 |
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Accumulated Depreciation - Machinery |
19,950 |
36,000 |
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(+A) |
1,950 |
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Machinery (-A) |
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Gain on Disposal of Plant Assets (+SE) To record sale of machinery at a gain. |
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Machinery (new) (+A) |
39,000 |
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Accumulated Depreciation - Machinery (+A) |
19,950 |
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Loss from Disposal of Plant Asset (-SE) |
1,050 |
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Machinery (old) (-A) |
36,000 |
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Cash (-A) |
24,000 |
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To record exchange of machines. |
The exchange has commercial substance.
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Receivable from Insurance Company (+A) |
10,800 |
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Accumulated Depreciation - Machinery (+A) |
19,950 |
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Fire Loss (-SE) |
5,250 |
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Machinery (-A) |
36,000 |
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To record loss of machinery. |
Solution to demonstration problem B
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a. |
Land (+A) |
3,200,000 |
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Timber Stands (+A) |
4,800,000 |
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Cash (-A) |
8,000,000 |
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To record purchase of land and timber. |
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b. |
Timber Stands (+A) |
800,000 |
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Cash (-A) |
800,000 |
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To record costs of development of the site. |
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c. |
Depletion (-SE) |
1,792,000 |
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Accumulated Depletion-Timber Stands (-A) To record depletion for 2007. |
1,792,000 |
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$4,800,000} + $800,000 / 50,000,000 = $0.112 per board foot. |
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$0.112 X 16,000,000 = $ 1,792,000.) |
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d. |
Depreciation Expense-Buildings (-SE) |
25,600 |
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Accumulated Depreciation-Buildings (-A) |
25,600 |
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To record depreciation expense: |
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($ 160,000 - $ 80,000) / 50,000,000 board feet = $0.0016 per board foot. |
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$ 0.0016 X 16,000,000 = $ 25,600. |
Demonstration problem C
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a. |
Leasehold (+A) |
30,000 |
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Cash (-A) |
30,000 |
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To record purchase of sublease on warehouse. |
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b. |
Rent Expense (-SE) |
6,000 |
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Cash (-A) |
6,000 |
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To record annual rent payment. |
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c. |
Leasehold Improvements (+A) |
20,000 |
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Cash (-A) |
20,000 |
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To record payment for leasehold improvements. |
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d. |
Rent Expense(-SE) |
3,000 |
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Leasehold (-A) |
3,000 |
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To record leasehold amortization for 2007: |
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Annual amortization = $30,000/10 years = $3,000 |
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e. |
Rent Expense (-SE) |
2,000 |
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Leasehold Improvements (+A) |
2,000 |
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To amortize leasehold improvements: |
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Annual amortization = $20,000/10years = $2,000 |