Unformatted text preview: et value of the item given
up by one of the parties to equal the fair market value of the item that party is to receive. Thus, it is
probably safe to assume that the fair market value of the new building is $600,000. Based on the
$820,000 beginning balance in the Buildings account and the acquisition during 2012 of a new building for $600,000, one would expect the Buildings account to have a balance of $1,420,000 at the end of
2012. The fact that its balance is only $750,000 implies that Webb Industries must have disposed of a
building during 2012 that originally cost $670,000. Similarly, based on the beginning balance of
$80,000 in the Accumulated Depreciation: Buildings account and the $40,000 of depreciation taken on
buildings during 2012, one would expect the Accumulated Depreciation: Buildings account to have a
balance at the end of 2012 of $120,000. The fact that its balance is only $100,000 implies that the
accumulated depreciation associated with the building that Webb Industries sold during 2012 must
have been $20,000.
Further, based on the $250,000 beginning balance in the Land account and the disposal during 2012
of land that had a book value of $150,000, one would expect the Land account to have a balance of
$100,000 at the end of 2012. The fact that its balance is $250,000 implies that Webb Industries must
have acquired some land during 2012 that cost $150,000. This information is summarized in the
following T accounts. P14–8 Continued
100,000 Accumulated Depreciation
Sale X Sale 750,000 Y D e p r. E.B. X = Cost of building sold = $670,000
Y = Accumulated depreciation on building sold = $20,000 B.B.
Z Sale 150,000 250,000 Z = Cost of land purchased = $150,000
b. Case 1:
Proceeds from sale Note: = Cost of building sold – Related accumulated depreciation
= $130,000 – $20,000
= $110,000 This solution assumes that there was no gain or loss on the sale of the building, since no
such information was given in the problem. In the statement of cash flows for 2012, Webb Industries would report the following items under cash flows
from investing activities.
Proceeds from sale of bu...
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