P9-2A At December 31, 2017, Arnold Corporation reported the following plant asse
ID: 2540559 • Letter: P
Question
P9-2A At December 31, 2017, Arnold Corporation reported the following plant assets. $ 3,000,000 14,575,000 35,000,000 ns related to purchase net, and depreciation Land Buildings Less: Accumulated depreciation-buildings 11.925,000 Equipment Less: Accumulated depreciation-equipment 5,000,000 Total plant assets $26,500,000 $52,575,000 During 2018, the following selected cash transactions occurred Ap1 Purchased land for $2,200,000. May 1 Sold equipment that cost $600,000 when purchased on January 1, 2011. The equipment was sold Tor $170,000 June 1 Sold July-1 Purchased equipment for ST,100,000. Dec. 31 Retired equipment that cost $700,000 when purchased on December 31, 600,000. The land cost 2008. No salvage value was mecehied Instructions may wish to set up T-accounts, post beginning balances, and then post 2018 transactions.) Arnold uses straight-line depreciation for buildings and equipment. The buildings are estimat no salvage value; the equipment is estimated to have a 10-year useful lie a vage value. Update depreciation on assets disposed of at the time of sale or retirement ed to have a 40-year useful life and (bi Record adjusting entries for depreciation for 2018. assets $ the plant assets section of Arnold's balance sheet at December 31. 2018.Explanation / Answer
Date
Account Titles and explanation
Debit
Credit
Apr 1, 2018
Land
2,200,000
Cash
2,200,000
(to record land purchase)
May 1, 2018
Depreciation expense
20,000
Accumulated depreciation – equipment
20,000
(to record depreciation expenses on equipment sold (W.N 1)
May 1, 2018
Cash
170,000
Accumulated Depreciation-equipment
440,000
Equipment
600,000
Gain on sale of equipment
10,000
(to record sale of equipment W.N 2)
June 1, 2018
Cash
1,600,000
Land
1,000,000
Gain on sale of land
600,000
(to record sale of land)
July 1, 2018
Equipment
1,100,000
Cash
1,100,000
(to record purchase of equipment)
Dec 31, 2018
Depreciation expenses
70,000
Accumulated depreciation- equipment
70,000
(to record depreciation on equipment retired W.N 3)
Accumulated depreciation -equipment
700,000
Equipment
700,000
(to record equipment retired W.N 3)
b. Adjustment Entries
Dec 31, 2018
Depreciation expense
662,500
Accumulated depreciation -building
662,500
(to record depreciation on building during the year) W.N 4
Dec 31, 2018
Depreciation expenses
3,925,000
Accumulated depreciation- equipment
3,925,000
(to record depreciation on equipment during the year) W.N 5
Working Notes:
1. Cost of equipment sold = $600,000
Estimated Life = 10 years
Depreciation per year = 600,000/10 = $60,000
Depreciation in year 2018 for (Jan’18 – Apr’18) i.e. for 4 months = 60,000*4/12 = $20,000
2.
Date of Purchase of equipment
Jan 1, 2011
A. Cost
600,000
B. Depreciation per year
60,000
C. Depreciation till December 31, 2017 60,000*7years
420,000
D. Depreciation for the period Jan’18- Apr’18
20,000
E. Total Depreciation till Apr’18 (C+D)
440,000
F. Book Value (A-E)
160,000
G. Sale proceeds
170,000
H. Gain/(Loss) on sale (G-F)
10,000
3.
Equipment purchase on 31st Dec 2008 = $700,000
Life = 10 years
Depreciation per year = 700,000/10 = 70,000
Depreciation for the year 2018 = $70,000
Total accumulated depreciation till December 2018 from December 2008 = 70,000*10 = $700,000
So, Book value is NIL (Cost – Accumulated depreciation)
4.
Cost of Building as on 1/1/2018 =26,500,000
Life of buildings = 40 years
Depreciation on building during the year 2018 = $26,500,000/40 = $662,500
5.
Cost of equipment as on 1/1/2018
40,000,000
Less: Cost of equipment sold
(600,000)
Less: Cost of equipment retired
(700,000)
Book value of Old equipment as on 12/31/2018
38,700,000
A. Depreciation on old equipment 38,700,000/10
3,870,000
B. New equipment purchased on 7/1/2018 at 1,100,000
C. Depreciation on new equipment for 6 months i.e. (July – December’18)
1,100,000*1/10*6/12
55,000
D. Total depreciation on equipment (A+C)
$3,925,000
T-Accounts
Land
Beginning Balance
3,000,000
6/1/18
1,000,000
4/1/18
2,200,000
Closing Balance
4,200,000
Buildings
Beginning Balance
26,500,000
Closing Balance
26,500,000
Equipment
Beginning Balance
40,000,000
5/1/18
600,000
7/1/18
1,100,000
12/31/18
700,000
Closing Balance
39,800,000
Accumulated Depreciation- Building
Beginning Balance
11,925,000
12/31 Adjustment
662,500
Closing Balance
12,587,500
Accumulated Depreciation – Equipment
5/1/18
440,000
Beginning Balance
5,000,000
12/31/18
700,000
5/1/18
20,000
12/31/18
70,000
12/31 Adjustment
3,925,000
Closing Balance
7,875,000
C. Plant Assets section of Balance sheet
ARNOLD CORPORATION
Partial Balance Sheet
At December 31, 2017
Land
4,200,000
Buildings
26,500,000
Less: Accumulated depreciation- Buildings
12,587,500
13,912,500
Equipment
39,800,000
Less: Accumulated depreciation- Equipment
7,875,000
31,925,000
Total plant assets
50,037,500
Date
Account Titles and explanation
Debit
Credit
Apr 1, 2018
Land
2,200,000
Cash
2,200,000
(to record land purchase)
May 1, 2018
Depreciation expense
20,000
Accumulated depreciation – equipment
20,000
(to record depreciation expenses on equipment sold (W.N 1)
May 1, 2018
Cash
170,000
Accumulated Depreciation-equipment
440,000
Equipment
600,000
Gain on sale of equipment
10,000
(to record sale of equipment W.N 2)
June 1, 2018
Cash
1,600,000
Land
1,000,000
Gain on sale of land
600,000
(to record sale of land)
July 1, 2018
Equipment
1,100,000
Cash
1,100,000
(to record purchase of equipment)
Dec 31, 2018
Depreciation expenses
70,000
Accumulated depreciation- equipment
70,000
(to record depreciation on equipment retired W.N 3)
Accumulated depreciation -equipment
700,000
Equipment
700,000
(to record equipment retired W.N 3)
b. Adjustment Entries
Dec 31, 2018
Depreciation expense
662,500
Accumulated depreciation -building
662,500
(to record depreciation on building during the year) W.N 4
Dec 31, 2018
Depreciation expenses
3,925,000
Accumulated depreciation- equipment
3,925,000
(to record depreciation on equipment during the year) W.N 5
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