E9A-28 Exchanging assets—two situations
Learning Objective 7 Appendix 9A
2. Loss $(7,000)
Partner Bank recently traded in office fixtures. Here are the facts:
Old fixtures: New fixtures:
Cost, $91,000 Cash paid, $110,000
Accumulated depreciation,
$68,000
Market value,
$133,000
Requirements
1. Record Partner Bank’s trade-in of old fixtures for new ones. Assume the exchange had
commercial substance.
2. Now let’s change one fact. Partner Bank feels compelled to do business with Elm Furniture,
a bank customer, even though the bank can get the fixtures elsewhere at a better price.
Partner Bank is aware that the new fixtures’ market value is only $126,000. Record the
trade-in. Assume the exchange had commercial substance.
SOLUTION
Requirement 1
E9A-28, cont.
Requirement 2
E9A-29 Measuring asset cost, units-of-production depreciation, and asset trade
Learning Objectives 1, 2, 7 Appendix 9A
1. $11,880
Wimot Trucking Corporation uses the units-of-production depreciation method because
units-of-production best measures wear and tear on the trucks. Consider these facts about one
Mack truck in the company’s fleet.
When acquired in 2015, the rig cost $360,000 and was expected to remain in service for 10 years
or 1,000,000 miles. Estimated residual value was $90,000. The truck was driven 80,000 miles in
2015, 120,000 miles in 2016, and 160,000 miles in 2017. After 44,000 miles, on March 15, 2018,
the company traded in the Mack truck for a less expensive Freightliner. Wimot also paid cash of
$20,000. Fair market value of the Mack truck was equal to its net book value on the date of the
trade.
Requirements
1. Record the journal entry for depreciation expense in 2018.
2. Determine Wimot’s cost of the new truck.
3. Record the journal entry for the exchange of assets on March 15, 2018. Assume the
exchange had commercial substance.
E9A-29, cont.
SOLUTION
Requirement 1
Problems (Group A)
P9-30A Determining asset cost and recording partial-year depreciation, straight-line
Learning Objectives 1, 2
1. Bldg. $461,100
Discount Parking, near an airport, incurred the following costs to acquire land, make land
improvements, and construct and furnish a small building:
a. Purchase price of three acres of land $
80,000
b. Delinquent real estate taxes on the land to be paid by Discount Parking 6,300
c. Additional dirt and earthmoving 9,000
d. Title insurance on the land acquisition 3,200
e. Fence around the boundary of the property 9,600
f. Building permit for the building 1,000
g. Architect’s fee for the design of the building 20,700
h. Signs near the front of the property 9,300
i. Materials used to construct the building 215,000
j. Labor to construct the building 175,000
k. Interest cost on construction loan for the building 9,400
l. Parking lots on the property 28,500
m. Lights for the parking lots 11,200
n. Salary of construction supervisor (80% to building; 20% to parking lot and
concrete walks)
50,000
o. Furniture 11,200
p. Transportation of furniture from seller to the building 2,200
q. Additional fencing 6,600
Discount Parking depreciates land improvements over 15 years, buildings over 40 years, and
furniture over 10 years, all on a straight-line basis with zero residual value.
Requirements
1. Set up columns for Land, Land Improvements, Building, and Furniture. Show how to
account for each cost by listing the cost under the correct account. Determine the total cost
of each asset.
2. All construction was complete and the assets were placed in service on October 1. Record
partial-year depreciation expense for the year ended December 31. Round to the nearest
dollar.
P9-30A, cont.
SOLUTION
Requirement 1
P9-31A Determining asset cost, preparing depreciation schedules (3 methods), and
identifying depreciation results that meet management objectives
Learning Objectives 1, 2
1. Units-of-production, 12/31/18, Dep. Exp. $24,000
On January 3, 2018, Rapid Delivery Service purchased a truck at a cost of $100,000. Before
placing the truck in service, Rapid spent $3,000 painting it, $600 replacing tires, and $10,400
overhauling the engine. The truck should remain in service for five years and have a residual
value of $12,000. The truck’s annual mileage is expected to be 32,000 miles in each of the first
four years and 8,000 miles in the fifth year—136,000 miles in total. In deciding which
depreciation method to use, Andy Sargeant, the general manager, requests a depreciation
schedule for each of the depreciation methods (straight-line, units-of-production, and
double-declining-balance).
Requirements
1. Prepare a depreciation schedule for each depreciation method, showing asset cost,
depreciation expense, accumulated depreciation, and asset book value.
2. Rapid prepares financial statements using the depreciation method that reports the highest
net income in the early years of asset use. Consider the first year that Rapid uses the truck.
Identify the depreciation method that meets the company’s objectives.
P9-31A, cont.
SOLUTION
Requirement 1
P9-31A, cont.
Requirement 1, cont.
