Property, Plant, and Equipment:
Property, Plant, and Equipment refers to the fixed assets, having a useful life of more than a year that is acquired by a company to be used in its business activities, for generating revenue.
To Prepare: The
Explanation of Solution
Date | Account Title and Explanation | Post Ref. |
Debit ($) |
Credit ($) |
Cash | 140,000 | |||
New Building | 1,260,000 | |||
1,200,000 | ||||
Old Building | 2,000,000 | |||
Gain on exchange of assets | 600,000 | |||
(To record the exchange on the books of R Company.) |
Table (1)
Working note:
Determine the value of new building.
Determine the gain on exchange of assets.
- Cash is an asset account, and increased. Therefore, debit Cash account with $140,000.
- New Building increases the asset account. Hence, debit New Equipment account with $1,260,000.
- Accumulated depreciation – old asset is a contra asset. It increases the value of asset account. Therefore, debit Accumulated Depreciation with $1,200,000.
- Old Building is an asset account, and decreased. Therefore, credit Old Equipment account with $2,000,000.
- Gain on sale of exchange of assets increases the equity by $10,000. Hence, credit Gain on sale of exchange of assets with $600,000.
Prepare the journal entries to record the exchange on the books of Company E.
Date | Account Title and Explanation | Post Ref. |
Debit ($) |
Credit ($) |
New Building | 1,400,000 | |||
Accumulated depreciation – Old Building | 650,000 | |||
Cash | 140,000 | |||
Old Building | 1,600,000 | |||
Gain on exchange of buildings | 310,000 | |||
(To record the exchange on the books of P Company.) |
Table (2)
Working note:
Determine the value of new building.
Determine the gain on exchange of buildings.
- New Building increases the asset account. Hence, debit New Equipment account with $1,400,000.
- Accumulated depreciation – old asset is a contra asset. It increases the value of asset account. Therefore, debit Accumulated Depreciation with $650,000.
- Cash is an asset account and decreased. Therefore, credit Cash account with $140,000.
- Old Building is an asset account, and decreased. Therefore, credit Old Equipment account with $1,600,000.
- Gain on exchange of buildings increases the equity by $310,000. Hence, credit Gain on exchange of buildings with $310,000.
Want to see more full solutions like this?
Chapter 10 Solutions
INTERMEDIATE ACCOUNTING (LL) W/CONNECT
- E10-10 Exchange of Assets Use the same information as in E10-9, except that the warehouse owned by Denver has a fair value of $28,000, and therefore, Denver agrees to pay Bristol $2,000 to complete the exchange. Required: Assuming the exchange has commercial substance, prepare journal entries for Denver and Bristol to record the exchange.arrow_forwardExercise 10-9 (Algo) Acquisition cost; noninterest-bearing note [LO10-3] On January 1, 2021, Byner Company purchased a used tractor. Byner paid $4,000 down and signed a noninterest-bearing note requiring $41,000 to be paid on December 31, 2023. The fair value of the tractor is not determinable. An interest rate of 12% properly reflects the time value of money for this type of loan agreement. The company's fiscal year-end is December 31. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.) Required: 1. Prepare the journal entry to record the acquisition of the tractor. 2. How much interest expense will the company include in its 2021 and 2022 income statements for this note? 3. What is the amount of the liability the company will report in its 2021 and 2022 balance sheets for this note? O Answer is not complete. Complete this question by entering your answers in the tabs below. Req 1 Req 2 and 3 Prepare the journal…arrow_forwardExercise 10-9 (Algo) Acquisition cost; noninterest-bearing note [LO10-3] On January 1, 2024, Byner Company purchased a used tractor. Byner paid $6,000 down and signed a noninterest-bearing note requiring $43,000 to be paid on December 31, 2026. The fair value of the tractor is not determinable. An interest rate of 12% properly reflects the time value of money for this type of loan agreement. The company's fiscal year-end is December 31. Note: Use tables, Excel, or a financial calculator. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) Required: 1. Prepare the journal entry to record the acquisition of the tractor. 2. How much interest expense will the company include in its 2024 and 2025 income statements for this note? 3. What is the amount of the liability the company will report in its 2024 and 2025 balance sheets for this note? Complete this question by entering your answers in the tabs below. Req 1 Req 2 and 3 Prepare the journal entry to record the…arrow_forward
- P15-12 Lessee and lessor; lessee guaranteed residual value ●LO15-2, LO15-6 On January 1, 2024, Ghosh Industries leased a high-performance conveyer to Karrier Company for a four-year period ending December 31, 2027, at which time possession of the leased asset will revert back to Ghosh. • O • The equipment cost Ghosh $956,000 and has an expected useful life of five years. Ghosh expects the residual value at December 31, 2027, will be $300,000. Negotiations led to the lessee guaranteeing a $340,000 residual value. Equal payments under the finance/sales-type lease are $200,000 and are due on December 31 of each year with the first payment being made on December 31, 2024. • Karrier is aware that Ghosh used a 5% interest rate when calculating lease payments. Required: 1. Prepare the appropriate entries for both Karrier and Ghosh on January 1, 2024, to record the lease.arrow_forwardProblem 6. Sales and Leaseback On Januar y 1 20х1, Entity sold building to Entity and a simultaneously leased it back. Additional information follows : Fair value of building 1,000,000 Carrying amount of building 800,000 Remaining useful life of building 10 years Lease Term 5 years Annual rent payable at the end of each year 100,000 Implicit interest rate equal to market rate 12% The transfer qualifies as a sale. Requirements (Independent cases) : а. If the sales price is P1,000,000 which is equal to fair value compute t he following under the seller-lessee accounting i. Lease liability ii. Right of use Asset iii. Gain or Loss iv. Journal entries on January 1, 20x1 b. If the sales price is P1,000,000 which is equal to fair value compute the following under the buyer-lessor acco unting i. Gross Investment ii. Net Investment iii. Unearned Interest Income iv. Journal entries on January 1, 20x1 c. Same requirements in a and b but the sales price is P1,100,000 which is above the fair value…arrow_forwardExercise 10-3 (Algo) Acquisition costs; lump-sum acquisition [LO10-1, 10-2] Samtech Manufacturing purchased land and building for $4 million. In addition to the purchase price, Samtech made the following expenditures in connection with the purchase of the land and building: Title insurance Legal fees for drawing the contract Pro-rated property taxes for the period after acquisition State transfer fees An independent appraisal estimated the fair values of the land and building, if purchased separately, at $3.7 and $1.3 million, respectively. Shortly after acquisition, Samtech spent $85,000 to construct a parking lot and $43,000 for landscaping. Required: 1. Determine the initial valuation of each asset Samtech acquired in these transactions. 2. Determine the initial valuation of each asset, assuming that immediately after acquisition, Samtech demolished the building. Demolition costs were $280,000 and the salvaged materials were sold for $7,500. In addition, Samtech spent $82,000…arrow_forward
- 4 Required information [The following information applies to the questions displayed below] Case A. Kapono Farms exchanged an old tractor for a newer model. The old tractor had a book value of $16,000 (original cost of $36,000 less accumulated depreciation of $20,000) and a fair yalue of $9,800. Kapono paid $28,000 cash to complete the exchange. The exchange has commercial substance. Case B. Kapono Farms exchanged 100 acres of farmland for similar land. The farmland given had a book value of $540,000 and a fair value of $780,000. Kapono paid $58,000 cash to complete the exchange. The exchange has commercial substance. Required: 1. What is the amount of gain or loss that Kapono would recognize on the exchange? What is the initial value of the new tractor? 2. Assume the fair value of the old tractor is $22,000 instead of $9,800. What is the amount of gain or loss that Kapono would recognize on the exchange? What is the initial value of the new tractor? Complete this question by entering…arrow_forwardProblem 4 Archibald Corporation, a public corporation exchanged an asset with Bass Industries. Archibald Bass $ 320,000 $ 430,000 Original cost of the asset Accumulated depreciation $ 256,000 $ 344,000 Fair value of the asset $ 80,000 $ 120,000 9 Required- 10 a) Prepare the journal entries on the books of Archibald Corp assuming that the exchange would have commercial substance. 11 b) Prepare the journal entries on the books of Archibald Corp assuming that the exchange would have no commercial substance. 12 13 RESPONSE: 14 15 Debit Credit Date a) Account Name New Asset 16 17 18 +arrow_forwardExercise 10-3 (Algo) Acquisition costs; lump-sum acquisition [LO10-1, 10-2] Samtech Manufacturing purchased land and building for $3 million. In addition to the purchase price, Samtech made the following expenditures in connection with the purchase of the land and building: Title insurance Legal fees for drawing the contract Pro-rated property taxes for the period after acquisition State transfer fees $23,000 8,500 43,000 4,700 An independent appraisal estimated the fair values of the land and building, if purchased separately, at $3 and $2 million, respectively. Shortly after acquisition, Samtech spent $89,000 to construct a parking lot and $47,000 for landscaping. Required: 1. Determine the initial valuation of each asset Samtech acquired in these transactions. 2. Determine the initial valuation of each asset, assuming that immediately after acquisition, Samtech demolished the building. Demolition costs were $320,000 and the salvaged materials were sold for $9,500. In addition,…arrow_forward
- 03:42:34 Brief Exercise 7-18 (Algo) Account for the exchange of long-term assets (LO7-6) China Inn and Midwest Chicken exchanged assets. China Inn received delivery equipment and gave restaurant equipment. The fair value and book value of the restaurant equipment were $24,000 and $15,600 (original cost of $43,000 less accumulated depreciation of $27,400), respectively. To equalize market values of the exchanged assets, China Inn paid $7,900 in cash to Midwest Chicken. Record the gain or loss for China Inn on the exchange of the equipment. (If no entry is required for a particular transaction/event, select "No Journal Entry Required" in the first account field.) No 1 Transaction 1 Equipment (Delivery) Equipment (Restaurant) Cash Gain Answer is not complete. General Journal 3000 Debit 15,600 7,900X 8,400 Credit 24,000arrow_forwardExercise 10-3 (Algo) Acquisition costs; lump-sum acquisition [LO10-1, 10-2] Samtech Manufacturing purchased land and a building for $4 million. In addition to the purchase price, Samtech made the following expenditures in connection with the purchase of the land and building: Title insurance Legal fees for drawing the contract Pro-rated property taxes for the period after acquisition State transfer fees $ 19,000 6,500 39,000 4,300 An independent appraisal estimated the fair values of the land and building, if purchased separately, at $3.7 and $1.3 million, respectively. Shortly after acquisition, Samtech spent $85,000 to construct a parking lot and $43,000 for landscaping. Required: 1. Determine the initial valuation of each asset Samtech acquired in these transactions. 2. Determine the initial valuation of each asset, assuming that immediately after acquisition, Samtech demolished the building. Demolition costs were $280,000 and the salvaged materials were sold for $7,500. In…arrow_forwarde amortization Intangible Assets 457 PROBLEM 3: EXERCISES 1. Big Publisher Co. has a publishing contract with Mr. Juan Lapis. An intangible asset for the publishing title is recognized on the contract. The carrying amount is P4,400,000. Bigger Publisher Co. has a similar publishing contract with Ms. Jane Ballpen. The carrying amount is P4,200,000. Big traded the publishing title with Lapis to Bigger for that of Ballpen. The fair value of each contract was P4,500,000. Requirement: Provide the entries in each of Big and Bigger's books under each of the following scenarios: a. The exchange transaction lacks commercial substance. b. The exchange transaction has commercial substance. (Adapted) 2. Coffee Co. incurred P5,000,000 on a self-created computer software, P2,100,000 of which was incurred after technological feasibility was established. The software is expected to have a 3-year economic life and generate future revenues of P35,000,000. The revenue generated by the software during the…arrow_forward
- Individual Income TaxesAccountingISBN:9780357109731Author:HoffmanPublisher:CENGAGE LEARNING - CONSIGNMENT