The plant asset and accumulated depreciation accounts of Pell Corporation had th
ID: 2367716 • Letter: T
Question
The plant asset and accumulated depreciation accounts of Pell Corporation had the following balances at December 31, 2010Land - Plant Asset 350000 - Accumulated depreciation $ ---
Land improvments - Plant Assets 180000 Accumulated depreciiation 45000
Building - Plant Assets 1500000 Accumulated Depreciation 350000
Machinery and equiptment - Plant Assets 1158000 -Accumulated Depreciation - 405000
Automobiles -Plant Assets 150000 - Accumulated depreciation -112000
Transactions during 2011 were as follows:
a.On January 2, 2011, machinery and equipment were purchased at a total invoice cost of $260,000, which included a $5,500 charge for freight. Installation costs of $27,000 were incurred.
b.On March 31, 2011, a machine purchased for $58,000 in 2007 was sold for $36,500. Depreciation recorded through the date of sale totaled $24,650.
c.On May 1, 2011, expenditures of $50,000 were made to repave parking lots at Pell's plant location. The work was necessitated by damage caused by severe winter weather.
d.On November 1, 2011, Pell acquired a tract of land with an existing building in exchange for 10,000 shares of Pell's common stock that had a market price of $38 per share. Pell paid legal fees and title insurance totaling $23,000. Shortly after acquisition, the building was razed at a cost of $35,000 in anticipation of new building construction in 2012.
e.On December 31, 2011, Pell purchased a new automobile for $15,250 cash and trade-in of an old automobile purchased for $18,000 in 2007. Depreciation on the old automobile recorded through December 31, 2011, totaled $13,500. The fair value of the old automobile was $3,750.
Required:
Prepare a schedule showing the gain or loss from each asset disposal that would be recognized in Pell's income statement for the year ended December 31, 2011.
Explanation / Answer
a) Jan 2, 2011 - Cost includes the purchase price of the asset, freight charges and all costs necessary to get the asset ready for its intended use. These costs should be capitalized because the asset benefits future periods. Cost = $260,000 which included $5,500 of freight charges and $27,000 Dr. Machinery 260,000 Cr. Cash 260,000 b) When disposing of property, plant or equipment, update Depreciation Expense and then journalize the disposal. It seems that in your question, Depreciation Expense has been updated and Accumulated Depreciation is $24,650. Journal Entry for Disposal of Machinery: Dr. Cash 36,500 Dr. Accumulated Depreciation 24,650 Cr. Machinery 58,000 Cr. Gain on Disposal 3,150 c) Ordinary repairs which maintain the operating efficiency of the asset should be expensed in the period that it occurs because it only benefits the current period. Dr. Repair Expense 50,000 Cr. Cash 50,000 d) I'm not sure about this one but I think it goes like this: Cost of Land = Purchase price ($38 X 10,000 = 380,000) + Freight Charges and Title Insurance (+ 23,000) + Razing Old Building (+ 35,000) = 438,000 Dr. Land 438,000 Cr. Cash 438,000 e) DR Cash 15,000 CR Tax 15,000