Select your language

Suggested languages for you:
Log In Start studying!
Answers without the blur. Just sign up for free and you're in → Illustration

Q9-32PGA

Expert-verified
Horngren'S Financial And Managerial Accounting
Found in: Page 533

Short Answer

A Recording lump-sum asset purchases, depreciation, and disposals Ellie Johnson Associates surveys American eating habits. The company’s accounts include Land, Buildings, Office Equipment, and Communication Equipment, with a separate Accumulated Depreciation account for each depreciable asset. During 2018, Ellie Johnson Associates completed the following transactions:

Jan. 1 Purchased office equipment, $113,000. Paid $80,000 cash and financed the remainder with a note payable.

Apr. 1 Acquired land and communication equipment in a lump-sum purchase. Total cost was $310,000 paid in cash. An independent appraisal valued the land at $244,125 and the communication equipment at $81,375.

Sep. 1 Sold a building that cost $520,000 (accumulated depreciation of $285,000 through December 31 of the preceding year). Ellie Johnson Associates received $420,000 cash from the sale of the building. Depreciation is computed on a straight-line basis. The building has a 40-year useful life and a residual value of $25,000.

Dec. 31 Recorded depreciation as follows:

Communication equipment is depreciated by the straight-line method over a five-year life with zero residual value.

Office equipment is depreciated using the double-declining-balance method over five years with a $1,000 residual value.

Record the transactions in the journal of Ellie Johnson Associate

Answer

A business entity will generate a profit of $193,250 on the sale of the building.

See the step by step solution

Step by Step Solution

Step 1: Definition of Depreciation

The expenses charged for the purpose of reporting the decline in the value of the fixed assets acquired by the company are known as depreciation expenses. Such expenses are reported in the statement reporting net income.

Step 2: Recorded Journal entries in the book of Ellie Johnson Associate

Date

Accounts & Explanation

Debit ($)

Credit ($)

Jan 1

Office Equipment

113,000

Cash

80,000

Note Payable

33,000

(To record the purchase of office equipment)

April 1

Land

232,500

Communication Equipment

77,500

Cash

310,000

Sep 1

Cash

420,000

Accumulated depreciation

293,250

Building

520,000

Profit on sale

193,250

Dec 31

Depreciation expenses – communication equipment

11,625

Accumulated depreciation – communication equipment

11,625

Dec 31

Depreciation expenses – office equipment

45,200

Accumulated depreciation – office equipment

45,200

Working notes:

  1. Allocating appraised value in lump-sum purchase:

Lot

Appraisal Fair Value

Land

$244,125

Communication equipment

81,375

Total Appraisal Fair Value

$ 325,500

Land

Communication equipment

Allocation of cash:

Particular

Cash paid

X

Ratio

=

Allocated cost $

Land

$310,000

X

0.75

=

$232,500

Communication equipment

$310,000

X

0.25

=

77,500

$310,000

  1. Depreciation for building sold in September:

2. Depreciation of communication equipment:

  1. Depreciation of office equipment

Most popular questions for Business-studies Textbooks

Icon

Want to see more solutions like these?

Sign up for free to discover our expert answers
Get Started - It’s free

Recommended explanations on Business-studies Textbooks

94% of StudySmarter users get better grades.

Sign up for free
94% of StudySmarter users get better grades.