E10-15B (Continued)
(c)
Notes Payable ……………………………………………………….
10,000
Interest Expense …………………………………………………….
Discount on Notes Payable …………………………..
E10-16B (25–35 minutes)
OGDEN INDUSTRIES
Acquisition of Assets 1 and 2
Use appraised values to break-out the lump-sum purchase
Description
Appraisal
Percentage
Value on
Books
Machinery
$160,000
160/200
$148,800
Office Furniture
40,000
37,200
Office Furniture ………………………………………………………
Acquisition of Asset 3
Use the cash price as a basis for recording the asset with a discount recorded on
the note.
Machinery ………………………………………………………………
Cash ………………………………………………………………
Notes Payable ………………………………………………..
E10-16B (Continued)
Acquisition of Asset 4
Since the exchange lacks commercial substance, a gain will be recognized in
the proportion of cash received ($20,000/$96,000) times the $6,000 gain (FMV
of $96,000 minus BV of $90,000). The gain recognized will then be $1,250 with
In this case, the Machinery should be placed on the books at the fair market
value of the stock. The difference between the stock’s par value and its fair
value should be credited to Paid-in Capital in Excess of Par.
Schedule of Weighted-Average Accumulated Expenditures
Date
Amount
Current Year
Capitalization
Period
Weighted-Average
Accumulated
Expenditures
March 1
$ 120,000
6/12
$ 60,000
E10-16B (Continued)
Avoidable Interest
Weighted-Average
Accumulated Expenditures
Interest Rate
Avoidable Interest
$285,000
X
10%
=
$28,500
Land ………………………………………………………………………
Cash ……………………………………………………….
Interest Expense …………………………………………….
E10-17B (10–15 minutes)
Phillips Corporation
Machine ($680 + $170) ……………………………………………..
850
Accumulated Depreciation ………………………………………
280
Loss on Disposal of Machine …………………………..………
130
Machine (old) ………………………………………………….
Cash ………………………………………………………………
Computation of loss:
Book value of old machine ($580 – $280)
Fair value of old machine
E10-17B (15–20 minutes)
Luzinski Business Machine Company
Cash ……………………………………………………………………….
Inventory (old) ……………………………………………………….
Cost of Goods Sold …………………………………………………
Sales ………………………………………………………………
Inventory (new) ……………………………………………….
E10-18B (20–25 minutes)
(a)
Exchange has commercial substance:
Depreciation Expense …………………………..…………………
1,700
Accumulated Depreciation—Press …………………..
1,700
($35,000 – $1,000 = $34,000;
$34,000 ÷ 10 = $3,400;
$3,400 X 6/12 = $1,700)
Press ……………………………………………………………………..
Accumulated Depreciation—Press …………………………..
Gain on Disposal of Plant Assets ……………………..
Press ……………………………………………………….
35,000
Cash ……………………………………………………….
*Cost of old asset
$35,000
Accumulated depreciation
($27,200 + $1,700)
(28,900)
Book value
6,100
Fair value of old asset
Gain (on disposal of plant asset)
$ 500
**Cash paid
Fair value of old press
6,600
E10-18B (Continued)
(b)
Exchange lacks commercial substance:
Depreciation Expense ……………………………………………..
1,700
Accumulated Depreciation—Press …………………..
1,700
Press ……………………………………………………………………..
Accumulated Depreciation—Press …………………………..
Gain on Disposal of Plant Assets …………………….
Press ……………………………………………………….
Cash ……………………………………………………….
**Cash paid
Fair value of old asset
E10-19B (15–20 minutes)
(a) Exchange lacks commercial substance
Mathews Company:
Equipment (New) …………………………………………………….
24,000
Accumulated Depreciation ……………………………………….
38,000
Equipment (Old) ………………………………………………
Cash ……………………………………………………….
Fair value received
Less: Gain deferred
*Fair value of old
equipment
Book value of old
equipment
E10-19B (Continued)
Biggio Company:
Cash ……………………………………………………………………….
6,000
Loss on Disposal of Equipment …………………………..
5,000
Equipment (New) …………………………………………………….
25,000
Accumulated Depreciation ……………………………………….
Equipment (Old) ………………………………………………
Fair value received
*Fair value of old
equipment
Book value of old
equipment
(b)
Exchange has commercial substance
Mathews Corporation:
Equipment ……………………………………………………….
31,000*
Accumulated Depreciation—Equipment …………………….
38,000
Equipment ………………………………………………………
Cash ……………………………………………………….
Gain on Disposal of Equipment………………………..
*Cost of new equipment:
Cash paid
$ 6,000
Fair value of old equipment
25,000
**Computation of gain on disposal of equipment:
Fair value of old equipment
$25,000
E10-19B (Continued)
Biggio Company:
Cash ………………………………………………………………………
6,000
Equipment ……………………………………………………….
25,000*
Accumulated Depreciation—Equipment (Old) ……………..
20,000
Loss on Disposal of Equipment …………………………..
Equipment …………………………..…………………………
56,000
Fair value of equipment
Less: Cash received
Fair value of equipment (Old)
E10-20B (15–20 minutes)
(a)
Exchange has commercial substance
Equipment ……………………………………………………….
55,300
Accumulated Depreciation—Equipment …………………..
38,500*
Gain on Disposal of Equipment ……………………….
Equipment …………………………..…………………………
Cash ($16,000 + $2,500) …………………………..
Valuation of equipment
Cash
$16,000
Installation cost
Market value of used equipment
E10-20B (Continued)
Computation of gain
Cost of old asset
$71,000
Accumulated depreciation
Book value
Gain on disposal of equipment
(b)
Fair value not determinable
Automatic Equipment ……………………………………………..
51,000*
Accumulated Depreciation—Equipment ……………………
38,500
Equipment ………………………………………………………
Cash ……………………………………………………….
Book value of old equipment
Cash paid (including installation costs)
E10-21B (20–25 minutes)
(a) Any addition to plant assets is capitalized because a new asset has been
created. This addition increases the service potential of the plant.
E10-21B (Continued)
(d) Conceptually, the book value of the old plumbing system should be
removed. However, practically it is often difficult if not impossible to
determine this amount. In this case, one of two approaches is followed. One
(e) See discussion in (d) above. In this case, because the useful life of the
asset has increased, a debit to Accumulated Depreciation would appear
to be the most appropriate.
E10-22B (15–20 minutes)
1/30
Accumulated Depreciation—Buildings …………………….
142,500*
Loss on Disposal of Plant Assets …………………………..
125,500**
Buildings ……………………………………………………….
250,000
Cash ……………………………………………………….
18,000
**($250,000 – $142,500) + $18,000
3/10
Cash ($1,500 – $1,000) …………………………………………….
500
Accumulated Depreciation—Machinery ……………………
14,000*
Machinery …………………………..………………………….
20,000
**($20,000 – $14,000 – $500)
E10-22B (Continued)
3/20
Equipment Repairs and Maintenance Expense …………….
750
Cash ……………………………………………………….
750
5/18
Machinery (New) ……………………………………………………..
6,000
Accumulated Depreciation—Machinery ……………………
1,800*
Loss on Disposal of Plant Assets …………………………..
1,200**
Machinery (Old) …………………………..………………….
Cash ……………………………………………………….
**($3,000 – $1,800)
6/23
Building Maintenance and Repairs Expense ……………..
Cash ……………………………………………………….
12,000
E10-23B (20–25 minutes)
(a) C
(b) C
E10-24B (20–25 minutes)
(a)
Depreciation Expense (10/12 X $72,000) …………………..
60,000
Accumulated Depreciation—Machine ………………
60,000
Cash ………………………………………………………………………
460,000
Accumulated Depreciation—Machine
($720,000 + $60,000) ……………………………………………..
780,000
Machine ……………………………………………………….
Gain on Disposal of Machine
$460,000 – ($980,000 – $780,000) …………………..
(b)
Depreciation Expense (5/12 X $72,000) …………………….
30,000
Accumulated Depreciation—Machine ………………
30,000
Cash ………………………………………………………………………
300,000
Accumulated Depreciation—Machine
($720,000 + $30,000) ……………………………………………..
750,000
Machine ……………………………………………………….
Gain on Disposal of Machine
[$300,00 – ($980,000 – $750,000)] ……………………..
(c)
Depreciation Expense (8/12 X $72,000) …………………….
48,000
Accumulated Depreciation—Machine ………………
48,000
Contribution Expense ……………………………………………..
610,000
Accumulated Depreciation—Machine
($720,000 + $48,000) ……………………………………………..
768,000
Machine ……………………………………………………….
Gain on Disposal of Machine …………………………..
*$610,000 – ($980,000 – $768,000)
E10-25B (15–20 minutes)
April 1
Cash …………………………..………………………………………….
375,000
Accumulated Depreciation—Building ………………………
125,000
Land ……………………………………………………….
Building ……………………………………………………….
Gain on Disposal of Plant Assets …………………….
Aug. 1
Land ………………………………………………………………………
Building ……………………………………………………….
525,000
Cash ……………………………………………………….