Financial and Managerial Accounting (Looseleaf) (Custom Package)
Financial and Managerial Accounting (Looseleaf) (Custom Package)
6th Edition
ISBN: 9781259754883
Author: Wild
Publisher: MCG
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Chapter 8, Problem 6PSB

1.

To determine

To prepare: Journal entries.

1.

Expert Solution
Check Mark

Explanation of Solution

To record cost of machine purchased.

Date Account Title and Explanation Post ref Debit ($) Credit ($)
Jan 2 Machine 150,000
Cash 150,000
(To record the cash purchases)

Table (1)

  • Machine is an asset account. Machine account increases as the new machine is bought to the business, hence the asset increases and all the assets are debited as their values increases.
  • Cash account is an asset account. Cash account decreases as the amount paid to purchase the equipment has been paid in cash, hence the asset decreases and all the assets are credited as their values decreases.

To record Additional cost spent on machinery in order to put it to use.

Date Account Title and Explanation Post ref Debit ($) Credit ($)
Jan 3 Machine 3,510
Cash 3,510
(To record the additional cost)

Table (2)

  • Machine is an asset account. Machine account increases as the new machine is bought to the business, hence the asset increases and all the assets are debited as their values increases.
  • Cash account is an asset account. Cash account decreases as the amount paid to purchase the equipment has been paid in cash, hence the asset decreases and all the assets are credited as their values decreases.

To record additional cost

Date Account Title and Explanation Post ref Debit ($) Credit ($)
Jan 3 Machine 4,600
Cash 4,600
(To record the additional cost)

Table (3)

  • Machine is an asset account. Machine account increases as the new machine is bought to the business, hence the asset increases and all the assets are debited as their values increases.
  • Cash account is an asset account. Cash account decreases as the amount paid to purchase the equipment has been paid in cash, hence the asset decreases and all the assets are credited as their values decreases.

Working Notes:

Computation of total cost of machinery:

    TotalCost=( Costofmachine+AdditionalCostspenttoputtousetheasset +Additionalcost ) =$150,000+$3,510+$4,600 =$158,110

Total cost of asset is

    $158,110 .

2.

To determine

To prepare: Journal entries.

2.

Expert Solution
Check Mark

Explanation of Solution

(a)

To record depreciation in the first year.

Date Account Title and Explanation Post ref Debit ($) Credit ($)
Dec 31 Depreciation 20,000
Accumulated Depreciation 20,000
(To record the depreciation)

Table (4)

  • Depreciation is an expense account. Depreciation account increases the balance of expense account and all the losses and expenses accounts are debited.
  • Accumulated Depreciation account is a contra asset account. Accumulated depreciation has a credit balance and increases as the depreciation is transferred to this account. This is the reason it is credited.

Working Notes:

The total value of machine is $158,110.

Computation of depreciation:

    Depreciation= ( CostoftheassetResidualvalue ) Usefullife = $158,110$18,110 7 =$20,000

Depreciation that will be charged in first year is $20,000.

(b)

To record depreciation in the year of disposal.

Date Account Title and Explanation Post ref Debit ($) Credit ($)
Dec 31 Depreciation 20,000
Accumulated Depreciation 20,000
(To record the depreciation)

Table (4)

  • Depreciation is an expense account. Depreciation account increases the balance of expense account and all the losses and expenses accounts are debited.
  • Accumulated Depreciation account is a contra asset account. Accumulated depreciation has a credit balance and increases as the depreciation is transferred to this account. This is the reason it is credited.

The depreciation will remain the same throughout the five years as the method used for depreciation is straight line depreciation; here depreciation amount of depreciation remains the same throughout.

3.

To determine

To prepare: Journal entries.

3.

Expert Solution
Check Mark

Explanation of Solution

(a)

To record the sale of asset for $28,000.

Date Account Title and Explanation Post ref Debit ($) Credit ($)
Dec 31 Cash 28,000
Loss on disposal of machine 10,110
Accumulated Depreciation 120,000
Machinery 158,100
(To record the sale of the asset)

Table (5)

  • Cash is an asset account. Cash account increases as the cash has been received by the company on the sale of the asset, hence the asset increases and all the assets are debited as their values increases.
  • Loss on disposal is an expense account. Loss account is increasing and is debited as all the expenses and losses are debited according to the rules.
  • Accumulated Depreciation account is a contra asset account. Accumulated depreciation has a credit balance and decreases as the account has been closed as the asset has been sold off. This is the reason it is debited.
  • Machine is an asset account. Machine account decreases as the as the asset has been disposed off and all the assets are credited as their values decrease.

Working notes:

Computation of Accumulated Depreciation:

    AccumulatedDepreciation=Depreciation×Usefullife =$20,000×6years =$120,000

Accumulated Depreciation is $120,000.

Computation of the book value of the asset:

    Bookvalue=ActualcostofmachineAccumulateddepreciation =$158,110$120,000 =$38,110

Book value of the asset is $38,110.

Computation of loss on sale of asset:

    LossonSale=Cashrecieved( CostAccumulateddepreciation ) =$28,000( $158,110$120,000 ) =$28,000$38,110 =( $10,110 )

Hence, loss on sale of asset is $ 10,110 .

(b)

To record the sale of asset for $52,000.

Date Account Title and Explanation Post ref Debit ($) Credit ($)
Dec 31 Cash 52,000
Accumulated Depreciation 120,000
Gain on sale 13,890
Machinery 158,110
(To record the sale of the asset)

Table (6)

  • Cash is an asset account. Cash account increases as the cash has been received by the company on the sale of the asset, hence the asset increases and all the assets are debited as their values increases.
  • Accumulated Depreciation account is a contra asset account. Accumulated depreciation has a credit balance and decreases as the account has been closed as the asset has been sold off. This is the reason it is debited.
  • Machine is an asset account. Machine account decreases as the as the asset has been disposed off and all the assets are credited as their values decrease.
  • Gain on sale is an income account. Gain account increases and is credited as all the income and gains are credited as per the rules of accounts.

Working Notes:

Computation of gain on sale:

    GainonSale=Cashrecieved( CostAccumulateddepreciation ) =$52,000( $158,110$120,000 ) =$52,000$38,110 =$13,890

Gain on sale of asset is $ 13,890 .

(c)

To record the entry for Asset destroyed in fire and collected $25,000 cash.

Date Account Title and Explanation Post ref Debit ($) Credit ($)
Dec 31 Cash 25,000
Loss by fire 13,110
Accumulated Depreciation 120,000
Machinery 158,110
(To record the sale of the asset)

Table (7)

  • Cash is an asset account. Cash account increases as the cash has been received by the company on the sale of the asset, hence the asset increases and all the assets are debited as their values increases.
  • Loss by fire is an expense account. Loss account is increasing and is debited as all the expenses and losses are debited according to the rules.
  • Accumulated Depreciation account is a contra asset account. Accumulated depreciation has a credit balance and decreases as the account has been closed as the asset has been sold off. This is the reason it is debited.
  • Machine is an asset account. Machine account decreases as the as the asset has been disposed off and all the assets are credited as their values decrease.

Working Notes:

Computation of the loss by fire:

    Lossbyfire=Cashrecieved( CostAccumulateddepreciation ) =$25,000( $158,110$120,000 ) =$25,000$38,110 =( $13,110 )

Hence, the loss by fire is $ 13,110 .

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Chapter 8 Solutions

Financial and Managerial Accounting (Looseleaf) (Custom Package)

Ch. 8 - Prob. 6DQCh. 8 - Prob. 7DQCh. 8 - Prob. 8DQCh. 8 - Prob. 9DQCh. 8 - Prob. 10DQCh. 8 - Prob. 11DQCh. 8 - Prob. 12DQCh. 8 - Prob. 13DQCh. 8 - Prob. 14DQCh. 8 - Prob. 15DQCh. 8 - Prob. 16DQCh. 8 - Prob. 17DQCh. 8 - Prob. 18DQCh. 8 - Prob. 19DQCh. 8 - Prob. 20DQCh. 8 - Prob. 21DQCh. 8 - Prob. 1QSCh. 8 - Prob. 2QSCh. 8 - Prob. 3QSCh. 8 - Prob. 4QSCh. 8 - Prob. 5QSCh. 8 - Prob. 6QSCh. 8 - Prob. 7QSCh. 8 - Prob. 8QSCh. 8 - Prob. 9QSCh. 8 - Prob. 10QSCh. 8 - Prob. 11QSCh. 8 - Prob. 12QSCh. 8 - Prob. 13QSCh. 8 - Prob. 14QSCh. 8 - Prob. 15QSCh. 8 - Prob. 1ECh. 8 - Prob. 2ECh. 8 - Prob. 3ECh. 8 - Prob. 4ECh. 8 - Prob. 5ECh. 8 - Prob. 6ECh. 8 - Prob. 7ECh. 8 - Prob. 8ECh. 8 - Prob. 9ECh. 8 - Prob. 10ECh. 8 - Prob. 11ECh. 8 - Prob. 12ECh. 8 - Prob. 13ECh. 8 - Prob. 14ECh. 8 - Prob. 15ECh. 8 - Prob. 16ECh. 8 - Prob. 17ECh. 8 - Prob. 18ECh. 8 - Prob. 19ECh. 8 - Prob. 20ECh. 8 - Prob. 21ECh. 8 - Prob. 22ECh. 8 - Prob. 23ECh. 8 - Prob. 24ECh. 8 - Prob. 25ECh. 8 - PROBLEM SET A Problem 81A Plant asset costs;...Ch. 8 - Prob. 2PSACh. 8 - Prob. 3PSACh. 8 - Prob. 4PSACh. 8 - Prob. 5PSACh. 8 - Prob. 6PSACh. 8 - Prob. 7PSACh. 8 - Prob. 8PSACh. 8 - Prob. 1PSBCh. 8 - Prob. 2PSBCh. 8 - Prob. 3PSBCh. 8 - Prob. 4PSBCh. 8 - Prob. 5PSBCh. 8 - Prob. 6PSBCh. 8 - Prob. 7PSBCh. 8 - Prob. 8PSBCh. 8 - Prob. 8SPCh. 8 - Prob. 1BTNCh. 8 - Prob. 2BTNCh. 8 - Prob. 3BTNCh. 8 - Prob. 4BTNCh. 8 - Prob. 5BTNCh. 8 - Prob. 6BTNCh. 8 - Prob. 7BTNCh. 8 - GOOGLE Google Inc. CONSOLIDATED BALANCE SHEETS (In...Ch. 8 - Prob. 9BTN
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