Moore Corporation follows a policy of a 10% depreciation charge per year on all machinery and a 5% depreciation charge per year on buildings. The following transactions occurred in 2015: March 31, 2015— Negotiations which began in 2014 were completed and a warehouse purchased 1/1/06 (depreciation has been properly charged through December 31, 2014) at a cost of $3,200,000 with a fair value of $2,000,000 was exchanged for a second warehouse which also had a fair value of $2,000,000. The exchange had no commercial substance. Both parcels of land on which the warehouses were located were equal in value, and had a fair value equal to book value. June 30, 2015— Machinery with a cost of $240,000 and accumulated depreciation through January 1 of $180,000 was exchanged with $150,000 cash for a parcel of land with a fair value of $230,000.The exchange had commercial substance. Required: Prepare all appropriate journal entries for the March 31, 2015 and June 30, 2015 exchanges for Moore Corporation.
Moore Corporation follows a policy of a 10% depreciation charge per year on all machinery and a 5% depreciation charge per year on buildings. The following transactions occurred in 2015: March 31, 2015— Negotiations which began in 2014 were completed and a warehouse purchased 1/1/06 (depreciation has been properly charged through December 31, 2014) at a cost of $3,200,000 with a fair value of $2,000,000 was exchanged for a second warehouse which also had a fair value of $2,000,000. The exchange had no commercial substance. Both parcels of land on which the warehouses were located were equal in value, and had a fair value equal to book value. June 30, 2015— Machinery with a cost of $240,000 and accumulated depreciation through January 1 of $180,000 was exchanged with $150,000 cash for a parcel of land with a fair value of $230,000.The exchange had commercial substance. Required: Prepare all appropriate journal entries for the March 31, 2015 and June 30, 2015 exchanges for Moore Corporation.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Depreciation Methods
The word "depreciation" is defined as an accounting method wherein the cost of tangible assets is spread over its useful life and it usually denotes how much of the assets value has been used up. The depreciation is usually considered as an operating expense. The main reason behind depreciation includes wear and tear of the assets, obsolescence etc.
Depreciation Accounting
In terms of accounting, with the passage of time the value of a fixed asset (like machinery, plants, furniture etc.) goes down over a specific period of time is known as depreciation. Now, the question comes in your mind, why the value of the fixed asset reduces over time.
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Moore Corporation follows a policy of a 10% depreciation charge per year on all machinery and a 5%
depreciation charge per year on buildings. The following transactions occurred in 2015:
March 31, 2015— Negotiations which began in 2014 were completed and a warehouse purchased 1/1/06
(depreciation has been properly charged through December 31, 2014) at a cost of
$3,200,000 with a fair value of $2,000,000 was exchanged for a second warehouse which
also had a fair value of $2,000,000. The exchange had no commercial substance. Both
parcels of land on which the warehouses were located were equal in value, and had a fair
value equal to book value.
June 30, 2015— Machinery with a cost of $240,000 and accumulated depreciation through January 1 of
$180,000 was exchanged with $150,000 cash for a parcel of land with a fair value of
$230,000.The exchange had commercial substance.
Required:
Prepare all appropriate journal entries for the March 31, 2015 and June 30, 2015 exchanges for Moore
Corporation.
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