Account financialstatement propertyplantequipment

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Unformatted text preview: ted accumulated depreciation for the equipment sold during 2011 as follows: Accumulated Depreciation at the End of 2010 + Depreciation Exp. for 2011 – $14,300 + $7,200 Accumulated Depreciation for the Sold Equipment during 2011 – X X = = = Accumulated Depreciation at the End of 2011 $17,600 $ 3,900 Now, we can reconstruct the journal entry. Cash 5,400* Accumulated Depreciation Equipment Gain on Sale of Equipment 3,900 7,200 2,100 * $7,200 + $2,100 – $3,900 = $5,400 E9–17 a. Account Financial Statement Property, plant & equipment Less: accumulated depreciation Depreciation expense Income Statement Investments in property, plant & equipment b. c. 16 Property, plant & equipment – 2007 Plus: investments in property, plant & equipment Less: property, plant & equipment – 2008 Property, plant & equipment sold in 2008 Accumulated depreciation – 2007 Plus: depreciation expense – 2008 Balance Sheet Balance Sheet Statement of Cash Flows $46,052 5,197 48,088 $ 3,161 $29,134 4,360 Less: accumulated depreciation – 2008 Accumulated depreciation – sold property 30,544 $ 2,950 E9–17 Concluded d. Compute the gain on the sale: Cost of property sold $3,161 Less: accumulated depreciation 2,950 Book value of property sold $ 211 Sales price of property Less: book value of property Loss on sale of property $100 211 $111 This loss on sale of property would appear on the income statement. E9–18 a. First, let us compute the related accumulated depreciation for the equipment sold during 2011 as follows: Accumulated Depreciation at the End of 2010 + Depreciation Cap. for 2011 – $9,800 + $3,800 Accumulated Depreciation for the Sold Equipment during 2011 – = Accumulated Depreciation at the End of 2011 X X = = $10,500 $ 3,100 = Equipment at the End of 2011 = $26,900 Now, we can reconstruct the journal entry. Cash 4,300 Loss on Sale of Equipment Accumulated Depreciation Equipment b. Equipment at the End of 2010 $23,400 17 + + 900 3,100 8,300 Equipment Purchased during 2011 – Equipment sold during 2011 X X – = $8,300 $11,800 Equipment purchased during 2011 = $11,800 E9–19 a. Swift Corporation should capitalize these costs. Assets are defined as items that are expected to provide future economic benefits to the entity. Organization costs are costs incurred by an entity prior to starting operations. Such costs include legal fees to incorporate and accountant's fees to set up an accounting system. Without incurring these costs, most companies could not be in business. Consequently, organization costs allow a company to be in business, thereby helping it to generate future benefits. Since these costs help in generating future benefits, they should most definitely be capitalized. b. Theoretically, organization costs should be amortized over their useful life. In the extreme, organization costs provide a benefit over the entire life of a company. Since under the going concern assumption accountants assume that entities will exist indefinitely, it would seem that organization costs should be amortized over an indefinite period. Since this position is not practical, the accounting profession has decided that organization costs should be amortized over a period not to exceed forty years. Assuming that Swift Corporation amortizes its organization costs over the maximum period of forty years, the appropriate adjusting journal entry for a single year would be as follows: Amortization Expense (E, –SE) Organization Costs (–A) Amortized organization costs. 1,125 1,125 c. As mentioned in part (b), organization costs theoretically provide benefits over the entire life of the company. Under the going concern assumption, the company is assumed to exist indefinitely. If the company is assumed to exist indefinitely and if organization costs provide benefits over the entire life of the company, then these costs should provide an indefinite benefit. Consequently, organization costs should provide a benefit for an indefinite period of time, which implies that they should be reported as an asset (i.e., future benefit) indefinitely. But if organization costs are amortized, the asset will at some point in time have a zero balance, and the cost of the asset cannot be matched against the benefits the asset will help generate in the future. This situation contradicts the matching principle and the concept of an asset. d. A patent gives a company the exclusive right to use or market a particular product or process, thereby providing the company with an expected future benefit. Consequently, the costs incurred to acquire a patent should be capitalized as an asset and amortized over the patent's useful life. If Swift were to immediately expense the $65,000, the company would be implying that it did not expect to receive any benefits from the patent in the future. If this were the case, one would have to question why Swift purchased the patent in the first place. e. Research and development costs may or may not provide a company with...
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