College Accounting, Chapters 1-9 (New in Accounting from Heintz and Parry)
College Accounting, Chapters 1-9 (New in Accounting from Heintz and Parry)
22nd Edition
ISBN: 9781305888531
Author: HEINTZ, James A., Parry, Robert W.
Publisher: Cengage Learning
bartleby

Videos

Textbook Question
Book Icon
Chapter 18, Problem 11SPA

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 accumulated depreciation of $2,800, was discarded.
  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 journal entries for the transactions.

Expert Solution & Answer
Check Mark
To determine

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:

DateAccount Titles and ExplanationPost Ref.Debit ($)Credit ($)
January1Accumulated Depreciation–Motor 122,800
Motor 122,800
(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.

Gain (loss) on discarded asset = Cost–Accumulated depreciation= $2,800–$2,800= $0

Transaction on January 8:

DateAccount Titles and ExplanationPost Ref.Debit ($)Credit ($)
January8Cash200
Accumulated Depreciation–Motor 84,000
Loss on Sale of Motor 8200
Motor 84,400
(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.

Book value = Cost–Accumulated depreciation= $4,400–$4,000= $400

Working Note (3):

Compute gain or loss on sale of asset.

Gain (loss )= Sale proceeds – Book value= $200 – $400= $(400)

Note: Refer to Working Note 2 for value and computation of book value.

Transaction on January 14:

DateAccount Titles and ExplanationPost Ref.Debit ($)Credit ($)
January14Cash450
Accumulated Depreciation–Motor 165,400
Motor 185,600
Gain on Sale of Motor 16250
(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.

Book value = Cost–Accumulated depreciation= $5,600–$5,400= $200

Working Note (5):

Compute gain or loss on sale of asset.

Gain (loss )= Sale proceeds – Book value= $450 – $200= $250

Note: Refer to Working Note 4 for value and computation of book value.

Transaction on February 1:

DateAccount Titles and ExplanationPost Ref.Debit ($)Credit ($)
February1Motor 22 (New)7,000
Accumulated Depreciation–Motor 6 (Old)4,800
Motor 6 (Old)6,000
Cash5,600
Gain on Exchange of Motors200
(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.

Book value = {Cost of old asset–Accumulated depreciation of old asset}= $6,000–$4,800= $1,200

Working Note (7):

Compute trade-in-allowance.

Trade-in-allowance = Market value of new motor–Cash paid=$7,000–$5,600=$1,400

Working Note (8):

Compute gain (loss) on exchange of asset.

Gain (loss) on exchange = {Trade-in-allowance –Book value of old asset }= $1,400 – $1,200= $200

Note: Refer to Working Notes 6 and 7 for value and computation of both values.

Transaction on February 9:

DateAccount Titles and ExplanationPost Ref.Debit ($)Credit ($)
February9Motor 23 (New)6,500
Accumulated Depreciation–Motor 9 (Old)5,000
Loss on Exchange of Motors200
Motor 9 (Old)5,500
Cash6,200
(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.

Book value = {Cost of old asset–Accumulated depreciation of old asset}= $5,500–$5,000= $500

Working Note (10):

Compute trade-in-allowance.

Trade-in-allowance = Market value of new motor–Cash paid=$6,500–$6,200=$300

Working Note (11):

Compute gain (loss) on exchange of asset.

Gain (loss) on exchange = {Trade-in-allowance –Book value of old asset }= $300 – $500= $(200)

Note: Refer to Working Notes 9 and 10 for value and computation of both values.

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!
Students have asked these similar questions
Delta Manufacturing reports the following information for June: please answer the accounting question
Hii expert please provide correct answer this general Accounting question
General Accounting Question provide solution

Chapter 18 Solutions

College Accounting, Chapters 1-9 (New in Accounting from Heintz and Parry)

Ch. 18 - The following costs were incurred to purchase a...Ch. 18 - Prob. 2CECh. 18 - Prob. 3CECh. 18 - Grandorf Company replaced the engine in a truck...Ch. 18 - Prepare journal entries for the following...Ch. 18 - Prob. 6CECh. 18 - Prob. 7CECh. 18 - Prob. 1RQCh. 18 - Prob. 2RQCh. 18 - Prob. 3RQCh. 18 - What is meant by the depreciable cost of a plant...Ch. 18 - Prob. 5RQCh. 18 - Prob. 6RQCh. 18 - Prob. 7RQCh. 18 - Prob. 8RQCh. 18 - Prob. 9RQCh. 18 - Prob. 10RQCh. 18 - Prob. 11RQCh. 18 - Prob. 12RQCh. 18 - Prob. 13RQCh. 18 - Prob. 14RQCh. 18 - Prob. 15RQCh. 18 - Prob. 16RQCh. 18 - Prob. 17RQCh. 18 - Prob. 18RQCh. 18 - Prob. 19RQCh. 18 - Prob. 20RQCh. 18 - Prob. 21RQCh. 18 - Prob. 22RQCh. 18 - Prob. 1SEACh. 18 - STRAIGHT-LINE, DECLINING-BALANCE, AND...Ch. 18 - UNITS-OF-PRODUCTION METHOD The truck purchased in...Ch. 18 - Prob. 4SEACh. 18 - JOURNAL ENTRIES: DISPOSITION OF PLANT ASSETS...Ch. 18 - Prob. 6SEACh. 18 - STRAIGHT-LINE, DECLINING-BALANCE,...Ch. 18 - UNITS-OF-PRODUCTION METHOD A machine is purchased...Ch. 18 - CALCULATING AND JOURNALIZING DEPRECIATION...Ch. 18 - IMPACT OF IMPROVEMENTS AND REPLACEMENTS ON THE...Ch. 18 - DISPOSITION OF ASSETS: JOURNALIZING Mitchell Parts...Ch. 18 - DEPLETION: CALCULATING AND JOURNALIZING Mineral...Ch. 18 - INTANGIBLE LONG-TERM ASSETS Track Town Co. had the...Ch. 18 - Prob. 1SEBCh. 18 - STRAIGHT-LINE, DECLINING-BALANCE, AND...Ch. 18 - Prob. 3SEBCh. 18 - Prob. 4SEBCh. 18 - JOURNAL ENTRIES: DISPOSITION OF PLANT ASSETS...Ch. 18 - Prob. 6SEBCh. 18 - STRAIGHT-LINE, DECLINING-BALANCE,...Ch. 18 - UNITS-OF-PRODUCTION METHOD A machine is purchased...Ch. 18 - CALCULATING AND JOURNALIZING DEPRECIATION...Ch. 18 - IMPACT OF IMPROVEMENTS AND REPLACEMENTS ON THE...Ch. 18 - DISPOSITION OF ASSETS: JOURNALIZING Mayer Delivery...Ch. 18 - DEPLETION: CALCULATING AND JOURNALIZING Mining...Ch. 18 - Prob. 13SPBCh. 18 - Prob. 1MYWCh. 18 - Creative Solutions purchased a patent from Russell...Ch. 18 - On April 1, 20-3, Kwik Kopy Printing purchased a...Ch. 18 - Prob. 1CP
Knowledge Booster
Background pattern image
Accounting
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.
Recommended textbooks for you
Text book image
College Accounting, Chapters 1-27
Accounting
ISBN:9781337794756
Author:HEINTZ, James A.
Publisher:Cengage Learning,
Text book image
Financial Accounting Intro Concepts Meth/Uses
Finance
ISBN:9781285595047
Author:Weil
Publisher:Cengage
Text book image
Cornerstones of Financial Accounting
Accounting
ISBN:9781337690881
Author:Jay Rich, Jeff Jones
Publisher:Cengage Learning
Text book image
Century 21 Accounting Multicolumn Journal
Accounting
ISBN:9781337679503
Author:Gilbertson
Publisher:Cengage
Text book image
Financial Accounting: The Impact on Decision Make...
Accounting
ISBN:9781305654174
Author:Gary A. Porter, Curtis L. Norton
Publisher:Cengage Learning
Text book image
Century 21 Accounting General Journal
Accounting
ISBN:9781337680059
Author:Gilbertson
Publisher:Cengage
Asset impairment explained; Author: The Finance Storyteller;https://www.youtube.com/watch?v=lWMDdtHF4ZU;License: Standard Youtube License