Morey, Inc., has the following plant asset accounts: Land, Buildings, and Equipment, with a separate accumulated depreciation account for each of these except Land. Morey completed the following transactions: Jan 4 Traded in equipment with accumlated depreciation of $64,000 (cost of $134,000) for similar new equipment with a cash cost of $175,000. Recieved a trade-in allowance of $72,000 on the old equipment and paid $103,000 in cash. Jan 29 Sold a building that had a cost of $650,000 and had accumulated depreciationof $140,000 through December 31 of the preceding year. Depreciation is computed on a straight-line basis. The building has a 40-year useful life and a residual value of $220,000. Morey received $125,000 cash and a $379,625 note receivable. Oct 30 Purchased land and a building for a single price of $360,000 cash. An independent appraisal valued the land at $160,800 and the building at $241,200. Dec 31 Recorded depreciation as follows: Equipment has an expected useful life of 8 years and an estimated residual value of 3% of cost. Depreciation is computed on the double-declining-balance method. Depreciation on buildings is computed by the straight-line method. The new building carries a 40-year useful life and a residual value equal to 30% of its cost. Requirement: 1, Record the transactions in Morey, Inc.'s journal.
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.
Morey, Inc., has the following plant asset accounts: Land, Buildings, and Equipment, with a separate
| Jan 4 | Traded in equipment with accumlated depreciation of $64,000 (cost of $134,000) for similar new equipment with a cash cost of $175,000. Recieved a trade-in allowance of $72,000 on the old equipment and paid $103,000 in cash. |
| Jan 29 | Sold a building that had a cost of $650,000 and had accumulated depreciationof $140,000 through December 31 of the preceding year. Depreciation is computed on a straight-line basis. The building has a 40-year useful life and a residual value of $220,000. Morey received $125,000 cash and a $379,625 note receivable. |
| Oct 30 | Purchased land and a building for a single price of $360,000 cash. An independent appraisal valued the land at $160,800 and the building at $241,200. |
| Dec 31 |
Recorded depreciation as follows: Equipment has an expected useful life of 8 years and an estimated residual value of 3% of cost. Depreciation is computed on the double-declining-balance method. Depreciation on buildings is computed by the straight-line method. The new building carries a 40-year useful life and a residual value equal to 30% of its cost. |
Requirement: 1, Record the transactions in Morey, Inc.'s journal.
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