1. Explanation Prepare the journal entry to record the trade-in of the old truck for the new one. Date Account Title and Explanation Post Ref. Debit ($) Credit ($) January 3 Equipment (New) 180,000 Accumulated depreciation –Equipment 65,000 Equipment (Old) 132,000 Cash 108,000 Gain on exchange of Equipment 5,000 (To record the trade-in of the old truck for the new one) Table (1) Working Notes: Calculate book value of old equipment. Book value of old equipment = { Cost of old equipment – Accumulated depreciation } = $132,000 –$65,000 = $67,000 Calculate gain (loss) on trade-in of old equipment for new equipment. Gain = Trade-in allowance–Book value of old equipment =$72,000–$67,000 =$5,000 Equipment (New) is an asset and it has increased. Thus, debit Equipment (New) account. Accumulated depreciation is a contra asset. It increases the value of asset account. Thus, debit Accumulated Depreciation. Equipment (Old) is an asset and there is a decrease in the value of the asset due to exchange. Thus, credit Equipment (Old). Cash is the current asset account, and it has decreased. Thus, credit cash account. Gain on Trade–in of Old Equipment is an income account. Income and gains increases the Equity account. Therefore, credit Gain on Trade–in of Old Equipment account. Journalize the transaction for the depreciation expense of the buildings. Date Account titles and explanation Post Ref. Debit ($) Credit ($) June 30 Depreciation expense–Buildings 5,500 Accumulated depreciation–Buildings 5,500 ( To record the depreciation expense on buildings) Table (2) Working Notes : Compute the depreciation expense. Depreciation = Acquisition cost – Residual value Useful life × Time period = $660,000–$220,000 40 years × 6 12 ( July to December ) =$5,500 Depreciation Expense is an expense account. Expenses decrease Equity value. Therefore, debit Depreciation Expense account. Accumulated Depreciation–Building is a contra-asset account and it would have a normal credit balance. Therefore, credit Accumulated Depreciation–Building account. Prepare the journal entry to record the sale of the building. Date Account Title and Explanation Post Ref. Debit ($) Credit ($) June 30 Cash 105,000 Note receivable 414,500 Accumulated depreciation–Building ( $ 135 , 000 + $ 5 , 500 ) 140,500 Building 660,000 (To record the sale of the building) Table (3) Cash is an asset account. The amount has increased because the sales amount is received. Therefore, debit Cash account. Note Receivable is an asset account. The amount has increased because the amount to be received has increased. Therefore, debit Note Receivable account. Accumulated Depreciation–Building is a contra-asset account. The amount of accumulated depreciation is closed by reversing the entry due to sale of building. Therefore, debit Accumulated Depreciation–Building account. Building is an asset account. The amount has decreased because the building is sold. Therefore, credit Building account. Prepare the journal entry to record the purchase of land and building for cash. Date Account Title and Explanation Post Ref. Debit ($) Credit ($) October 31 Land 129,500 Building 240,500 Cash 370,000 (To record the purchase of land and building for cash) Table (4) Working Notes: Calculate the market value of total assets

Financial Accounting (12th Edition) (What's New in Accounting)

12th Edition

ISBN: 9780134725987

Author: C. William Thomas, Wendy M. Tietz, Walter T. Harrison Jr.

Publisher: PEARSON

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Chapter 7, Problem 7.78BP

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To Record: The transactions in Incorporation M’s journal.

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Chapter 7 Solutions

Financial Accounting (12th Edition) (What's New in Accounting)

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To Record: The transactions in Incorporation M’s journal.

Solution Summary: The author explains how to prepare the journal entry to record the trade-in of old equipment for the new one.

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To Record: The transactions in Incorporation M’s journal.

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Chapter 7 Solutions