Question

At December 31, 2022, Martinez Corporation reported the following plant assets. Land $3,783,000 Buildings Less: Accumulated depreciation-buildings $26,590,000 15,037.425 50,440,000 11.552,575 Equipment Less: Accumulated depreciation equipment 6,305,000 Total plant assets 44.135,000 $59,470,575 During 2023, the following selected cash transactions occurred. Apr. 1 Purchased land for $2.774.200. May 1 Sold equipment that cost $756.600 when purchased on January 1, 2016. The equipment was sold for $214,370. June 1 Sold land for $2.017.600. The land cost $1.261,000. July 1 Purchased equipment for $1,387,100. Dec. 31 Retired equipment that cost $882.700 when purchased on December 31, 2013. No salvage value was received

Answer 1

Solution

Martinez Company

1. Journal Entries

Martinez Company
Journal Entries
Date	Account Titles and Explanation	Ref. No.	Debit	Credit
1-Apr-23	Land		$2,774,200
	Cash			$2,774,200
	(To record purchase of land)
1-May-23	Cash		$214,370
	Accumulated Depreciation – Equipment		$554,840
	Gain on Sale of Equipment			$12,610
	Equipment			$756,600
	(To record sale of equipment and gain on sale)
1-Jun-23	Cash		$2,017,600
	Gain on Sale of Land			$756,600
	Land			$1,261,000
	(To record sale of land and gain on sale)
1-Jul-23	Equipment		$1,387,100
	Cash			$1,387,100
	(To record purchase of equipment)
31-Dec-23	Accumulated Depreciation – Equipment		$882,700
	Equipment			$882,700
	(To record equipment retired)

Depreciation expense on equipment sold on May 1, 2023:

Depreciation Expense – Equipment Dr $25,220

Accumulated Depreciation – Equipment       Cr $25,220

(To record depreciation expense on equipment sold on May 1, 2023)

Computations:

1. For equipment sold on May 1, 2023 –

Purchase date – Jan 1, 2016

Cost = $756,600

Useful life = 10 years

Depreciation for2016, 2017, 2018, 2019, 2020, 2021, 2022 and 4 months in 2023

Annual depreciation assuming straight line method = $756,600/10 = $75,660

Accumulated depreciation for the period 2016 – May 1, 2023; 7 years 4months = (7 x $75,660) + ($75,660 x 4/12)

Accumulated depreciation = 529,620 + 25,220 = $554,840

Book value of equipment sold = 756,600 – 554,840 = $201,760

Sale proceeds = $214,370

Gain on sale of equipment = 214,370 – 201,760 = $12,610

2. Gain or loss on sale of land on June 1, 2023 –

Cost = $1,261,000

Sale = $2,017,600

Gain on sale of land = $756,600

3. Depreciation on equipment purchased on July 1 –

Cost = $1,387,100
straight line depreciation

Useful life = 10 years

Depreciation expense for the 6-month period, July 1, 2023 – December 31, 2023

= $1,387,100/10 x 6/12 = $69,355

4. For equipment retired on Dec 31, 2023 –

Date of purchase = Dec 31, 2013

Cost = $882,700

Annual depreciation = $882,700/10 years = $88,270

Accumulated depreciation as on Dec 31, 2023 = 88,270 x 10 years = $882,700

The equipment is fully depreciated.

2. Plant assets section of the balance sheet as on December 31, 2023:

Martinez Company
Balance Sheet (Partial)
As on December 31, 2023
Property, Plant and Equipment
Land		$5,296,200
Buildings	$26,590,000
Less: Accumulated Depreciation – Buildings	$15,702,175	$10,887,825
Equipment	$50,187,800
Less: Accumulated Depreciation – Equipment	$5,050,305	$45,137,495
Total Plant Assets		$61,321,520

Computations:

1. Land –

Beg. Balance = $3,783,000

Add: purchases = $2,774,200

Less: sale = ($1,261,000)

Ending balance = $5,296,200

2. Equipment –

Beg. Balance = 50,440,000

Less: equipment sold = (756,600)

Less: equipment retired = (882,700)

Add: Equipment purchased = $1,387,100

Ending balance = $50,187,800

Accumulated Depreciation – Equipment

Beg. Balance = 6,305,000

Add: Depreciation on equipment sold (cost 756,600)            $25,220

Add: Depreciation on equipment purchased (cost 1,387,100) $69,355

Add: depreciation on equipment retired (cost 882,700)            $88,270

Total = $6,487,845

Less: accumulated depreciation on equipment sold $554,840

Less: accumulated depreciation on equipment retired $882,700

Ending balance = $5,050,305

3. Buildings –

No purchase or sale took place. Hence the ending balance equals the beginning balance.

Buildings = $26,590,000

Accumulated Depreciation –

Beg. Balance = $15,037,425

Add: depreciation expense 2023 = $570,400 (26,590,000/40 years = 664,750)

Ending balance = $15,702,175

• Adjusting Entries:

Martinez Company
Date	Account Titles and Explanation	Ref. No.	Debit	Credit
31-Dec-23	Depreciation Expense - Equipment		$157,625
	Accumulated Depreciation - Equipment			$157,625
	(To record depreciation on equipment, (88,270 + 69,355))
31-Dec-23	Depreciation Expense - Buildings		$664,750
	Accumulated Depreciation - Buildings			$664,750
	(To record depreciation on buildings, 26,590,000/40 = 664,750)