Question

Q.3

Prepare the journal entries to record the following transactions for Eklund Company which has a calendar year end and uses the straight-line method of depreciation.

a)On September 30, 2011, the company exchanged old delivery equipment and $24,000 for new delivery equipment. The old delivery equipment was purchased on January 1, 2009, for $84,000 and was estimated to have a $12,000 salvage value at the end of its 5-year life. Depreciation on the delivery equipment has been recorded through December 31, 2010. It is estimated that the fair market value of the old delivery equipment is $36,000 on September 30, 2011.

(b)On June 30, 2011, the company exchanged old office equipment and $40,000 for new office equipment. The old office equipment originally cost $80,000 and had accumulated depreciation to the date of disposal of $35,000. It is estimated that the fair market value of the old office equipment on June 30 was $60,000. The transaction has commercial substance.

Answer 1

	Date	Accounts Titles and Explanation	Debit	Credit
a	Sep 30, 2011	Depreciation Expense	$10,800
		Accumulated Depreciation—Equipment		$10,800
		(To record depreciation expense for the first 9 months)
		( $72,000 ÷ 5 years = $14,400 × 9/12 = $10,800)
	Sep 30, 2011	Equipment - New	$63,000
		Accumulated Depreciation—Equipment ($28,800 + $10,800)	$39,600
		Loss on Disposal	$5,400
		Equipment - Old		$84,000
		Cash		$24,000
		(To record exchange of old delivery equipment for new delivery equipment at a loss)
	Working
		Fair value of old delivery equipment	$39,000
		Cash Paid	$24,000
		Cost of new delivery equipment	$63,000
b	June 30, 2011	Equipment - New	$100,000
		Accumulated Depreciation—Equipment	$35,000
		Gain on Disposal		$15,000
		Equipment - Old		$80,000
		Cash		$40,000
		(To record exchange of old delivery equipment for new delivery equipment at a loss)
	Working
		Fair value of old delivery equipment	$60,000
		Cash Paid	$40,000
		Cost of new delivery equipment	$100,000