Weygandt, Accounting Principles, 12e
Chapter Ten
Solutions to Challenge Exercises
Challenge Exercise 10-1 – Solution
a) 1. Equipment
2. Equipment
3. Equipment
4. Land
5. Prepaid Insurance
6. Land Improvements
7. Land Improvements
8. Land
9. Buildings
b) Sales tax on factory machinery purchased does not help the company earn revenue only in the current
year. If it did, debiting an expense account would be appropriate. The sales tax enables the company to
acquire machinery, which will help the company earn revenue for a number of years. Therefore, the expense
recognition principle requires the company to debit this sales tax to the asset Equipment, and expense it over
the years benefitted through depreciation expense.
Challenge Exercise 10-2 – Solution
(a) Cash ………………………………………………………………………………….. 40,000
Accumulated Depreciation—Equipment …………………………………… 37,800
[($70,000 – $7,000) X 3/5]
Equipment …………………………..……………………………………. 70,000
Gain on Disposal of Plant Assets ………………………………….. 7,800
(c) Cash…. ………………………………………………………………………………… 15,000
(d) Depreciation Expense……………………………………………………………… 8,400
[($70,000 – $7,000) X 1/5 X 8/12]
Accumulated Depreciation—Equipment ……………………………… 8,400
(e) Cash ………………………………………………………………………………….. 40,000
Accumulated Depreciation—Equipment …………………………………… 54,880
($28,000 + $16,800 + $10,080)