Page 479 - Accounting Principles (A Business Perspective)

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

Alternate problems
Alternate problem A Ray, Inc., purchased a new 2010 model automobile on 2010 December 31. The cash
price of the new automobile was USD 28,080, from which Ray received a trade-in allowance of USD 4,320 for a

2008 model traded in. The 2008 model had been acquired on 2008 January 1, at a cost of USD 20,700.
Depreciation has been recorded on the 2008 model through 2009 December 31, using the straight-line method, an
expected four-year useful life, and an expected salvage value of USD 2,700. The exchange has commercial
substance.
a. Record depreciation expense for 2010.
b. Prepare the journal entries needed to record the exchange of automobiles.
Alternate problem B On 2007 January 1, Wood Company purchased a truck for USD 43,200 cash. The truck

has an estimated useful life of six years and an expected salvage value of USD 5,400. Depreciation on the truck was
computed using the straight-line method.
a. Prepare a schedule showing the computation of the book value of the truck on 2009 December 31.
b. Prepare the journal entry to record depreciation for the six months ended 2010 June 30.
c. Prepare journal entries to record the disposal of the truck on 2010 June 30, under each of the following
unrelated assumptions:
(a) The truck was sold for USD 3,600 cash.
(b)The truck was sold for USD 25,200 cash.
(c) The truck was scrapped. Used parts valued at USD 6,660 were salvaged.

(d)The truck (which has a fair market value of USD 10,800) and USD 32,400 of cash were exchanged
for a used back hoe that did not have a known market value. The transaction has commercial substance.
(e) The truck and USD 29,700 cash were exchanged for another truck that had a cash price of USD
51,300. The exchange has no commercial substance.
(f) The truck was stolen July 1, and insurance proceeds of USD 7,560 were expected.
Alternate problem C Kine Company purchased a new Model II computer 2009 October 1. Cash price of the
new computer was USD 24,960; Jackson received a trade-in allowance of USD 9,300 from the cash price for a

Model I computer. The old computer was acquired on 2007 January 1, at a cost of USD 23,040. Depreciation has
been recorded through 2008 December 31, on a straight-line basis, with an estimated useful life of four years and
USD 3,840 expected salvage value. The exchange has commercial substance.
Prepare the journal entries to record the exchange.
Alternate problem D On 2009 July 1, Morgan Company had the following balances in some of its accounts:
Accumulated
Asset Depreciation
Land $ 672,000
Leasehold 252,000
Buildings 3,151,680 $369,768
Equipment 1,370,880 436,800
Trucks 238,560 71,652
The leasehold covers a plot of ground leased on 2004 July 1, for a period of 25 years under an operating lease.

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