Page 475 - Accounting Principles (A Business Perspective)

11. Plant asset disposals, natural resources, and intangible assets

Exercises
Exercise A Plant equipment originally costing USD 32,400, on which USD 21,600 of up-to-date depreciation
has been accumulated, was sold for USD 8,100.

a. Prepare the journal entry to record the sale.
b. Prepare the entry to record the sale of the equipment if USD 90 of removal costs were incurred to allow the
equipment to be moved.
Exercise B On 2009 August 31, Hutch Company sold a truck for USD 6,900 cash. The truck was acquired on
2006 January 1, at a cost of USD 17,400. Depreciation of USD 10,800 on the truck has been recorded through 2008
December 31, using the straight-line method, four-year expected useful life, and an expected salvage value of USD
3,000.

Prepare the journal entries to update the depreciation on the truck on 2009 August 31, and to record the sale of
the truck.
Exercise C A machine costing USD 120,000, on which USD 90,000 of up-to-date depreciation has been
accumulated, was completely destroyed by fire. What journal entry should record the machine's destruction and the
resulting fire loss under each of the following unrelated assumptions?
a. The machine was not insured.
b. The machine was insured, and it is estimated that USD 22,500 will be recovered from the insurance company.
Exercise D Kale Company owned an automobile acquired on 2007 January 1, at a cash cost of USD 35,100; at
that time, the automobile was estimated to have a useful life of four years and a USD 2,700 salvage value.

Depreciation has been recorded through 2009 December 31, on a straight-line basis. On 2010 January 1, the
automobile was traded for a new automobile. The old automobile had a fair market value (trade-in allowance) of
USD 6,750. Cash of USD 31,050 was paid. The exchange has commercial substance.
Prepare the journal entry to record the trade-in under generally accepted accounting principles.
Exercise E Equipment costing USD 330,000, on which USD 225,000 of up-to-date accumulated depreciation
has been recorded, was disposed of on 2009 January 2. What journal entries are required to record the equipment's
disposal under each of the following unrelated assumptions?

a. The equipment was sold for USD 120,000 cash.
b. The equipment was sold for USD 87,000 cash.
c. The equipment was retired from service and hauled to the junkyard. No material was salvaged.
d. The equipment was exchanged for similar equipment having a cash price of USD 450,000. A trade-in
allowance of USD 150,000 from the cash price was received, and the balance was paid in cash. The exchange has no
commercial substance.
e. The equipment was exchanged for similar equipment having a cash price of USD 450,000. A trade-in
allowance of USD 75,000 was received, and the balance was paid in cash. The exchange has commercial substance.
Exercise F Nola Mining Company purchased a tract of land containing ore for USD 630,000. After spending

USD 90,000 in exploration costs, the company determined that 600,000 tons of ore existed on the tract but only
500,000 tons could be economically removed. No other costs were incurred. When the company finishes with the
tract, it estimates the land will be worth USD 180,000. Determine the depletion cost per ton.
Exercise G Boyd Company paid USD 7,200,000 for the right to extract all of the mineral-bearing ore,
estimated at 10 million tons, that can be economically extracted from a certain tract of land. During the first year,

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