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DISPOSITION OF ASSETS: JOURNALIZING Mitchell Parts Co. had the following plant asset transactions during the year:
1. Assets discarded or sold:
Jan. | 1 | Motor #12, which had a cost of $2,800 and |
8 | Motor #8, which had a cost of $4,400 and accumulated depreciation of $4,000, was sold for $200. | |
14 | Motor #16, which had a cost of $5,600 and accumulated depreciation of $5,400, was sold for $450. |
2. Assets exchanged or traded in:
Feb. | 1 | Motor #6, which had a cost of $6,000 and accumulated depreciation of $4,800, was traded in for a new motor (#22) with a fair market value of $7,000. The old motor and $5,600 in cash were given for the new motor. |
9 | Motor #9, which had a cost of $5,500 and accumulated depreciation of $5,000, was traded in for a new motor (#23) with a fair market value of $6,500. The old motor and $6,200 in cash were given for the new motor. |
REQUIRED
Prepare general
![Check Mark](/static/check-mark.png)
Journalize the transactions related to plant assets in the books of Corporation MP.
Explanation of Solution
Journal entry: Journal entry is a set of economic events which can be measured in monetary terms. These are recorded chronologically and systematically.
Debit and credit rules:
- Debit an increase in asset account, increase in expense account, decrease in liability account, and decrease in stockholders’ equity accounts.
- Credit decrease in asset account, increase in revenue account, increase in liability account, and increase in stockholders’ equity accounts.
Journalize the transactions related to plant assets in the books of Corporation MP.
Transaction on January 1:
Date | Account Titles and Explanation | Post Ref. | Debit ($) | Credit ($) | ||
January | 1 | Accumulated Depreciation–Motor 12 | 2,800 | |||
Motor 12 | 2,800 | |||||
(Record discarding of Motor 12) |
Table (1)
Description:
- Accumulated Depreciation–Motor 12 is a contra-asset account. Since the motor is discarded, the accumulated depreciation balance is reversed to reduce the balance in the account, hence, the account is debited.
- Motor 12 is an asset account. Since motor is discarded, asset account decreased, and a decrease in asset is credited.
Working Note 1:
Determine the gain or loss recognized on the discarding of asset.
Transaction on January 8:
Date | Account Titles and Explanation | Post Ref. | Debit ($) | Credit ($) | ||
January | 8 | Cash | 200 | |||
Accumulated Depreciation–Motor 8 | 4,000 | |||||
Loss on Sale of Motor 8 | 200 | |||||
Motor 8 | 4,400 | |||||
(Record sale of Motor 8) |
Table (2)
Description:
- Cash is an asset account. Since cash is received, asset account increased, and an increase in asset is debited.
- Accumulated Depreciation–Motor 8 is a contra-asset account. Since the motor is sold, the accumulated depreciation balance is reversed to reduce the balance in the account, hence, the account is debited.
- Loss on Sale of Motor 8 is an expense account. Since losses and expenses decrease equity, equity value is decreased, and a decrease in equity is debited.
- Motor 8 is an asset account. Since motor is sold, asset account decreased, and a decrease in asset is credited.
Working Note (2):
Compute book value of asset on the date of sale.
Working Note (3):
Compute gain or loss on sale of asset.
Note: Refer to Working Note 2 for value and computation of book value.
Transaction on January 14:
Date | Account Titles and Explanation | Post Ref. | Debit ($) | Credit ($) | ||
January | 14 | Cash | 450 | |||
Accumulated Depreciation–Motor 16 | 5,400 | |||||
Motor 18 | 5,600 | |||||
Gain on Sale of Motor 16 | 250 | |||||
(Record sale of Motor 16) |
Table (3)
Description:
- Cash is an asset account. Since cash is received, asset account increased, and an increase in asset is debited.
- Accumulated Depreciation–Motor 16 is a contra-asset account. Since the motor is sold, the accumulated depreciation balance is reversed to reduce the balance in the account, hence, the account is debited.
- Motor 16 is an asset account. Since motor is sold, asset account decreased, and a decrease in asset is credited.
- Gain on Sale of Motor 16 is a revenue account. Since gains and revenues increase equity, equity value is increased, and an increase in equity is credited.
Working Note (4):
Compute book value of asset on the date of sale.
Working Note (5):
Compute gain or loss on sale of asset.
Note: Refer to Working Note 4 for value and computation of book value.
Transaction on February 1:
Date | Account Titles and Explanation | Post Ref. | Debit ($) | Credit ($) | ||
February | 1 | Motor 22 (New) | 7,000 | |||
Accumulated Depreciation–Motor 6 (Old) | 4,800 | |||||
Motor 6 (Old) | 6,000 | |||||
Cash | 5,600 | |||||
Gain on Exchange of Motors | 200 | |||||
(Record exchange of old motor for a new motor) |
Table (4)
Description:
- Motor 22 (New) is an asset account. Since new machine is brought into the business, asset account increased, and an increase in asset is debited.
- Accumulated Depreciation– Motor 6 (Old) is a contra-asset account. Since the machine is sold, the accumulated depreciation balance is reversed to reduce the balance in the account, hence, the account is debited.
- Motor 6 (Old) is an asset account. Since old machine is exchanged, asset account decreased, and a decrease in asset is credited.
- Cash is an asset account. Since cash is paid, asset account decreased, and a decrease in asset is credited.
- Gain on Exchange of Motors is a revenue account. Since gains and revenues increase equity, equity value is increased, and an increase in equity is credited.
Working Note (6):
Compute book value of old asset on the date of exchange.
Working Note (7):
Compute trade-in-allowance.
Working Note (8):
Compute gain (loss) on exchange of asset.
Note: Refer to Working Notes 6 and 7 for value and computation of both values.
Transaction on February 9:
Date | Account Titles and Explanation | Post Ref. | Debit ($) | Credit ($) | ||
February | 9 | Motor 23 (New) | 6,500 | |||
Accumulated Depreciation–Motor 9 (Old) | 5,000 | |||||
Loss on Exchange of Motors | 200 | |||||
Motor 9 (Old) | 5,500 | |||||
Cash | 6,200 | |||||
(Record exchange of old motor for a new motor) |
Table (5)
Description:
- Motor 23 (New) is an asset account. Since new machine is brought into the business, asset account increased, and an increase in asset is debited.
- Accumulated Depreciation– Motor 9 (Old) is a contra-asset account. Since the machine is sold, the accumulated depreciation balance is reversed to reduce the balance in the account, hence, the account is debited.
- Loss on Exchange of Motors is an expense account. Since losses and expenses decrease equity, equity value is decreased, and a decrease in equity is debited.
- Motor 9 (Old) is an asset account. Since old machine is exchanged, asset account decreased, and a decrease in asset is credited.
- Cash is an asset account. Since cash is paid, asset account decreased, and a decrease in asset is credited.
Working Note (9):
Compute book value of old asset on the date of exchange.
Working Note (10):
Compute trade-in-allowance.
Working Note (11):
Compute gain (loss) on exchange of asset.
Note: Refer to Working Notes 9 and 10 for value and computation of both values.
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Chapter 18 Solutions
College Accounting, Chapters 1-27
- DISPOSITION OF ASSETS: JOURNALIZING Mayer Delivery Co. had the following plant asset transactions during the year: 1. Assets discarded or sold: Jan. 1 Van #11, which had a cost of 8,800 and accumulated depreciation of 8,800, was discarded. 8 Van #7, which had a cost of 9,400 and accumulated depreciation of 9,000, was sold for 200. 14 Van #13, which had a cost of 7,600 and accumulated depreciation of 7,400, was sold for 250. 2. Assets exchanged or traded in: Feb. 1 Van #8, which had a cost of 11,000 and accumulated depreciation of 8,800, was traded in for a new van (#20) with a fair market value of 13,000. The old van and 10,500 in cash were given for the new van. 9 Van #3, which had a cost of 7,500 and accumulated depreciation of 7,000, was traded in for a new van (#21) with a fair market value of 9,500. The old van and 9,200 in cash were given for the new van. REQUIRED Prepare general journal entries for the transactions.arrow_forwardDuring the current year, Yost Company disposed of three different assets. On January 1 of the current year, prior to the disposal of the assets, the accounts reflected the following: Accumulated Depreciation Asset Machine A Machine B Original Cost Residual Value Estimated Life $33,000 $3,000 12 years 16,800 10 years Machine C 5,100 17 years 140,000 75,600 (straight line) The machines were disposed of during the current year in the following ways: a. Machine A: Sold on January 1 for $7,500 cash. $25,000 (10 years) 98,560 (8 years) 49,765 (12 years) b. Machine B: Sold on December 31 for $54,120; received cash, $43,296, and an $10,824 interest-bearing (12 percent) note receivable due at the end of 12 months. c. Machine C: On January 1, this machine suffered irreparable damage from an accident. On January 10, a salvage company removed the machine at no cost. P8-5 Part 1 Required: 1. Give all journal entries related to the disposal of each machine in the current year. a. Machine A. b.…arrow_forwardJournal Entries: Disposition of Plant Assets Prepare the entries for the transactions using a general journal. 1. Discarding an asset. a. On January 4, shelving units, which had a cost of $6,400 and had accumulated depreciation of $5,900, were discarded. b. On June 15, a hand cart, which had a cost of $1,500 and had accumulated depreciation of $1,350, was sold for $150. c. On October 1, a copy machine, which had a cost of $7,200 and had accumulated depreciation of $6,800, was sold for $450. Page: 1 DOC. POST. NO. REF. DATE ACCOUNT TITLE DEBIT CREDIT 20-- 1 Jan. 4 2 2 3 4. 4 June 15 6 6 7 7 8 9. Oct. 1 9 10 10 11 11 12 12 2. Exchange or trade-in of assets. a. On December 31, a drill press, which had a cost of $60,000 and had accumulated depreciation of $48,000, was traded in for a new drill press with a fair market value of $75,000. The old drill press and $65,000 in cash were given for the new drill press. b. On December 31, the old drill press in (a) and $60,000 in cash were given for…arrow_forward
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