During the current year, Hitchcock Developers disposed of plant assets in the following transactions. Feb. 10 office equipment costing $24,000 was given to a scrap dealer at no charge. At the date of disposal, accumulated depreciation on the office equipment amounted to $21,800. Apr. 1 Hitchcock sold land and building to Claypool Associates for $900,000, receiving $100,000 cash and 5 years, 9 percent note receivables for the remaining balance. Hitchcock’s records showed the following amount: Land, $50,000; building, $550,000; accumulated depreciation: building (at the date of disposal), $250,000 Aug. 15 Hitchcock traded in an old truck for a new one. The old truck had cost $26,000, and its accumulated depreciation amounted to $18,000. The list price the new truck was $39,000, but Hitchcock received a $10,000 trade in allowance for the old truck and paid $28,000 in cash. Hitchcock includes trucks in its Vehicles account. Oct. 1 Hitchcock traded in its old computer system as part of the purchase of a new system. The old system had cost $15,000, and its accumulated depreciation amounted to $11,000. The new computer’s list price was $8,000. Hitchcock accepted a trade in allowance of $500 for the old computer system, paying $1,500 down in cash and issuing a 1 year, 8 percent note payable for the $6,000 balance owed. Prepare journal entries to record each of the disposal transactions. Assume that depreciation expense on each asset has been recorded up to the date of disposal. Thus, you need not update the accumulated depreciation figures stated in the problem. Will the gains and losses recorded in part a affect the gross profit reported in Hitchcock’s income statement? Explain. Explain how the financial reporting of gain and losses plant assets differs from the financial reporting of unrealized gains and losses on marketable securities.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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During the current year, Hitchcock Developers disposed of plant assets in the following transactions.

Feb. 10 office equipment costing $24,000 was given to a scrap dealer at no charge. At the date of disposal, accumulated depreciation on the office equipment amounted to $21,800.

Apr. 1 Hitchcock sold land and building to Claypool Associates for $900,000, receiving $100,000 cash and 5 years, 9 percent note receivables for the remaining balance. Hitchcock’s records showed the following amount: Land, $50,000; building, $550,000; accumulated depreciation: building (at the date of disposal), $250,000

Aug. 15 Hitchcock traded in an old truck for a new one. The old truck had cost $26,000, and its accumulated depreciation amounted to $18,000. The list price the new truck was $39,000, but Hitchcock received a $10,000 trade in allowance for the old truck and paid $28,000 in cash. Hitchcock includes trucks in its Vehicles account.

Oct. 1 Hitchcock traded in its old computer system as part of the purchase of a new system. The old system had cost $15,000, and its accumulated depreciation amounted to $11,000. The new computer’s list price was $8,000. Hitchcock accepted a trade in allowance of $500 for the old computer system, paying $1,500 down in cash and issuing a 1 year, 8 percent note payable for the $6,000 balance owed.

Prepare journal entries to record each of the disposal transactions. Assume that depreciation expense on each asset has been recorded up to the date of disposal. Thus, you need not update the accumulated depreciation figures stated in the problem.
Will the gains and losses recorded in part a affect the gross profit reported in Hitchcock’s income statement? Explain.
Explain how the financial reporting of gain and losses plant assets differs from the financial reporting of unrealized gains and losses on marketable securities.

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