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Based on the 820000 beginning balance in the

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Unformatted text preview: le Y D e p r. E.B. 100,000 X = Cost of building sold = $130,000 Y = Accumulated depreciation on building sold = $20,000 Case 2: Based on the $380,000 beginning balance in the Equipment account and the sale during 2012 of equipment that originally cost $50,000, one would expect the Equipment account to have a balance at the end of 2012 of $330,000. The fact that its balance is $500,000 implies that Webb Industries must have purchased some equipment for $170,000. Similarly, based on the beginning balance of $85,000 in the Accumulated Depreciation: Equipment account and the $15,000 of depreciation taken on the equipment during 2012, one would expect the Accumulated Depreciation: Equipment account to have a balance at the end of 2012 of $100,000. The fact that its balance is only $75,000 implies that the accumulated depreciation associated with the equipment that Webb Industries sold during 2012 must have been $25,000. This information is summarized in the following T accounts. P14–8 Continued B.B. 85,000 Purchase Depr. Exp. E.B. 75,000 Equipment 380,000 X 15,000 Accumulated Depreciation B.B. Sale 50,000 500,000 Sale Y E.B. X = Cost of equipment purchased = $170,000 Y = Accumulated depreciation on equipment sold = $25,000 Case 3: Based on the $250,000 beginning balance in the Land account and the sale of land during 2012, one would expect the balance in the Land account to decrease. The fact that its balance is still $250,000 at the end of 2012 implies that (1) Webb Industries must have purchased some land during 2012 and (2) the cost of the land purchased exactly equaled the original cost of the land that was sold. Since a gain on the sale of land equals the excess of the proceeds over the cost of the land, it can be inferred that the land that Webb Industries sold during 2012 originally cost $225,000 (i.e., proceeds of $300,000 less gain of $75,000). Thus, the cost of the land that Webb Industries purchased during 2012 was $225,000. This information is summarized in the following T account. B.B. Purchase E.B. Y = Cost of land purchased = $225,000 Land 250,000 Y Sale X 250,000 X = Cost of land sold = $225,000 Case 4: In exchange between two independent parties, one would expect the fair mark...
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