Concept explainers
To prepare: Journal entries in the books of International GG
Explanation of Solution
Debit and credit rules:
- Debit an increase in asset account, increase in expense account, decrease in liability account, and decrease in
stockholders’ equity accounts. - Credit decrease in asset account, increase in revenue account, increase in liability account, and increase in stockholders’ equity accounts.
Prepare journal entry for the transaction occurred on January 2, 2015.
Date | Account Titles and Explanations | Post. Ref. | Debit ($) | Credit ($) | ||
2015 | ||||||
January | 2 | Building | 95,000 | |||
Cash | 95,000 | |||||
(To record purchase of building) |
Table (1)
Description:
- Building is an asset account. Since building is bought, asset account increased, and an increase in asset is debited.
- Cash is an asset account. Since cash is paid, asset account decreased, and a decrease in asset is credited.
Prepare journal entry for the transaction occurred on January 3, 2015.
Date | Account Titles and Explanations | Post. Ref. | Debit ($) | Credit ($) | ||
2015 | ||||||
January | 3 | Building | 5,000 | |||
Cash | 5,000 | |||||
(To record purchase of building) |
Table (2)
Description:
- Building is an asset account. Since building is bought, asset account increased, and an increase in asset is debited.
- Cash is an asset account. Since cash is paid, asset account decreased, and a decrease in asset is credited.
Prepare journal entry for the transaction occurred on April 1, 2015.
Date | Account Titles and Explanations | Post. Ref. | Debit ($) | Credit ($) | ||
2015 | ||||||
April | 1 | Equipment | 38,000 | |||
Cash | 38,000 | |||||
(To record purchase of equipment) |
Table (3)
Description:
- Equipment is an asset account. Since equipment is bought, asset account increased, and an increase in asset is debited.
- Cash is an asset account. Since cash is paid, asset account decreased, and a decrease in asset is credited.
Prepare journal entry for the transaction occurred on May 13, 2015.
Date | Account Titles and Explanations | Post. Ref. | Debit ($) | Credit ($) | ||
2015 | ||||||
May | 13 | Repairs and Maintenance Expense | 250 | |||
Cash | 250 | |||||
(To record payment of expense) |
Table (4)
Description:
- Repairs and Maintenance Expense is an expense account. Since expenses decrease equity, equity value is decreased, and a decrease in equity is debited.
- Cash is an asset account. Since cash is paid, asset account decreased, and a decrease in asset is credited.
Prepare journal entry for the transaction occurred on April 1, 2015.
Date | Account Titles and Explanations | Post. Ref. | Debit ($) | Credit ($) | ||
2015 | ||||||
April | 1 | Patents | 20,000 | |||
Cash | 20,000 | |||||
(To record purchase of patents) |
Table (5)
Description:
- Patent is an asset account. Since patents are bought, asset account increased, and an increase in asset is debited.
- Cash is an asset account. Since cash is paid, asset account decreased, and a decrease in asset is credited.
Prepare journal entry for the
Date | Account Titles and Explanation | Post Ref. | Debit ($) | Credit ($) | ||
2015 | ||||||
December | 31 | Depreciation Expense–Building | 20,000 | |||
Depreciation Expense–Equipment | 4,500 | |||||
Amortization Expense | 2,000 | |||||
20,000 | ||||||
Accumulated Depreciation–Equipment | 4,500 | |||||
Accumulated Amortization | 2,000 | |||||
(To record depreciation expense and amortization expense) |
Table (6)
Description:
- Depreciation Expense–Building is an expense account. Since expenses decrease equity, equity value is decreased, and a decrease in equity is debited.
- Depreciation Expense–Equipment is an expense account. Since expenses decrease equity, equity value is decreased, and a decrease in equity is debited.
- Amortization Expense is an expense account. Since expenses decrease equity, equity value is decreased, and a decrease in equity is debited.
- Accumulated Depreciation–Building is a contra-asset account, and contra-asset accounts would have a normal credit balance, hence, the account is credited.
- Accumulated Depreciation–Equipment is a contra-asset account, and contra-asset accounts would have a normal credit balance, hence, the account is credited.
- Accumulated Amortization is a contra-asset account, and contra-asset accounts would have a normal credit balance, hence, the account is credited.
Working Notes:
Determine the depreciation expense for building under double-declining-balancemethod, if cost of building is $100,000, useful life is 10 years, and accumulated depreciation is $0.
Determine the depreciation expense for equipmentfor 9 months (April 1 to December 31) under straight-linemethod, if cost of equipment is $38,000, useful life is 5 years, and residual value is $8,000.
Determine amortization expense for 6 months (from July 1 to December 31), if cost of patent is $20,000, and useful life is 5 years.
Prepare journal entry for the depreciation expense as on June 30, 2016.
Date | Account Titles and Explanation | Post Ref. | Debit ($) | Credit ($) | ||
2016 | ||||||
June | 30 | Depreciation Expense–Equipment | 3,000 | |||
Accumulated Depreciation–Equipment | 3,000 | |||||
(To record depreciation expense) |
Table (7)
Description:
- Depreciation Expense–Equipment is an expense account. Since expenses decrease equity, equity value is decreased, and a decrease in equity is debited.
- Accumulated Depreciation–Equipment is a contra-asset account, and contra-asset accounts would have a normal credit balance, hence, the account is credited.
Working Notes:
Determine the depreciation expense for equipmentfor 6 months (December 31, 2015 to June 30, 2016) under straight-linemethod, if cost of equipment is $38,000, useful life is 5 years, and residual value is $8,000.
Prepare journal entry for the sale of truck on June 30, 2016.
Date | Account Titles and Explanation | Post Ref. | Debit ($) | Credit ($) | ||
2016 | ||||||
June | 30 | Cash | 33,000 | |||
Accumulated Depreciation–Equipment | 7,500 | |||||
Equipment | 38,000 | |||||
Gain on Disposal | 2,500 | |||||
(To record sale of truck) |
Table (8)
Description:
- Cash is an asset account. Since cash is received, asset account increased, and an increase in asset is debited.
- Accumulated Depreciation–Equipment is a contra-asset account. Since the equipment is sold, the accumulated depreciation balance is reversed to reduce the balance in the account, hence, the account is debited.
- Equipment is an asset account. Since equipment is sold, asset account decreased, and a decrease in asset is credited.
- Gain on Disposal is a revenue account. Since gains and revenues increase equity, equity value is increased, and an increase in equity is credited.
Working Notes:
Determine the gain on sale.
Step 1: Compute book value on the date of sale.
Step 2: Compute gain on sale.
Prepare journal entry for the depreciation expense as on December 31, 2016.
Date | Account Titles and Explanation | Post Ref. | Debit ($) | Credit ($) | ||
2016 | ||||||
December | 31 | Depreciation Expense–Building | 16,000 | |||
Accumulated Depreciation–Building | 16,000 | |||||
(To record depreciation expense) |
Table (9)
Description:
- Depreciation Expense–Building is an expense account. Since expenses decrease equity, equity value is decreased, and a decrease in equity is debited.
- Accumulated Depreciation–Building is a contra-asset account, and contra-asset accounts would have a normal credit balance, hence, the account is credited.
Working Notes:
Determine the depreciation expense for building under double-declining-balancemethod, if cost of building is $100,000, useful life is 10 years, and accumulated depreciation is $20,000.
Prepare journal entry for the impairment loss as on December 31, 2016.
Date | Account Titles and Explanation | Post Ref. | Debit ($) | Credit ($) | ||
2016 | ||||||
December | 31 | Impairment Loss | 18,000 | |||
Patent | 18,000 | |||||
(To record impairment loss) |
Table (10)
Description:
- Impairment Loss is an expense account. Since losses and expenses decrease equity, equity value is decreased, and a decrease in equity is debited.
- Patent is an asset account. Since patent value is written off, the value of asset is decreased, and a decrease in asset is credited.
Working Notes:
Compute impairment loss, if cost of patent is $20,000, and accumulated amortization is $2,000 (Refer to Table 6).
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Chapter 9 Solutions
Connect 1 Semester Access Card for Fundamentals of Financial Accounting
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