Ill 10 37 equipment 13000 accumulated 4000

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Illustration 10-11
10-37Equipment 13,000Accumulated Depreciation—Equipment 4,000Loss on Disposal of Equipment 2,000Equipment 12,000Cash 7,000Valuation of PP&ELO 5 Understand accounting issues related to acquiring and valuing plant assets.Illustration:Information Processing records this transaction as follows:Illustration 10-12Loss on Disposal
10-38Valuation of PP&ELO 5 Understand accounting issues related to acquiring and valuing plant assets.Exchanges—Gain SituationHas Commercial Substance. Company usually records the cost of a nonmonetary asset acquired in exchange for another nonmonetary asset at the fair value of the asset given up, and immediately recognizes a gain.
10-39Valuation of PP&ELO 5 Understand accounting issues related to acquiring and valuing plant assets.Illustration:Interstate Transportation Company exchanged a number of used trucks plus cash for a semi-truck. The used trucks have a combined book value of $42,000 (cost $64,000 less $22,000 accumulated depreciation). Interstate’s purchasing agent, experienced in the secondhand market, indicates that the used trucks have a fair market value of $49,000. In addition to the trucks, Interstate must pay $11,000 cash for the semi-truck. Interstate computes the cost of the semi-truck as follows.Illustration 10-13
10-40Truck (semi) 60,000Accumulated Depreciation—Trucks 22,000Trucks (used)64,000Gain on Disposal of Trucks7,000Cash 11,000Valuation of PP&ELO 5 Understand accounting issues related to acquiring and valuing plant assets.Illustration:Interstate records the exchange transaction as follows:Illustration 10-14Gain on Disposal
10-41Valuation of PP&ELO 5 Understand accounting issues related to acquiring and valuing plant assets.Exchanges—Gain SituationLacks Commercial Substance—No Cash Received.Now assume that Interstate Transportation Company exchange lacks commercial substance. Interstate defers the gain of $7,000 and reduces the basis of the semi-truck.
10-42Trucks (semi) 53,000Accumulated Depreciation—Trucks 22,000Trucks (used)64,000Cash 11,000Valuation of PP&ELO 5 Understand accounting issues related to acquiring and valuing plant assets.Illustration:Interstate records the exchange transaction as follows:Illustration 10-15
10-43Valuation of PP&ELO 5 Understand accounting issues related to acquiring and valuing plant assets.Lacks Commercial Substance—Some Cash Received.When a company receives cash (sometimes referred to as “boot”) in an exchange that lacks commercial substance, it may immediately recognize a portion of the gain. The general formula for gain recognition when an exchange includes some cash is as follows:Illustration 10-16Exchanges—Gain Situation
10-44Valuation of PP&ELO 5 Understand accounting issues related to acquiring and valuing plant assets.Illustration:Queenan Corporation traded in used machinery with a book value of $60,000 (cost $110,000 less accumulated depreciation $50,000) and a fair value of $100,000. It receives in exchange a machine with a fair value of $90,000 plus cash of $10,000.

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