Question

Question 5 Assume Interstellar Communications Ltd.'s balance sheet includes the following assets under Property, Plant, and Equipment: Land, Buildings, and Motor-Carrier Equipment. Interstellar Communications has a separate accumulated depreciation account for each of these assets except land. Further, assume that Interstellar completed the following transactions: Jan 2: Sold motor-carrier equipment with accumulated depreciation of $67,000 (cost of $130,000) for $70,000 cash. Purchased similar new equipment with a cash price of $176,000. • July 3: Sold a building that had cost $650,000 and had accumulated depreciation of $145,000 through December 31 of the preceding year. Depreciation is computed on a straight line basis The building had a 40-year useful life and a residual value of $250,000. Interstellar received $100,000 cash and a $400,000 note receivable. Oct 29: Purchased land and a building for a single price of $420,000. An independent appraisal valued the land at $150,000 and the building at $300,000 Dec 31: Recorded depreciation as follows: New motor-carrier equipment has an expected useful life of six years and an estimated residual value of 5% of cost. Depreciation is computed on the double-diminishing balance method. Depreciation on buildings is computed by the straight-line method. The new building carries a 40-year useful life and a residual value equal to 10% of its cost. 1. Please journalize each of the transactions from Jan 2nd - Dec 31st.

Answer 1

Journal Entries
Date	Particulars	Debit	Credit
Jan2	Cash	70000		Note 1
	Accumulated Depreciation	67000
	To Gain on sale of motor carrier equipment		7000
	To Motor Carrier Equipment		130000
	( Sale of motor carrier equipment at a gain of 7000 )
Jan2	New - Motor Carrier Equipment	176000
	To Cash		176000
	( New motor carrier equipment purchased )
Jul-03	Cash	100000		Note 2
	Notes receivable	400000
	Loss on sale of building	5000
	Accumulated Depreciation	145000
	To Building		650000
	( Building sold at a loss of 5000 )
Oct-29	Land and Building	420000
	To Cash		420000
	( New land and building purchased, )
	Independent appraisal value - not relevant here
Dec-31	Depreciation on Motor Carrier Equipment	58666.67		Note 3
	To Accumulated Depreciation		58666.67
Dec-31	Depreciation on Building	9450		Note 4
	To Accumulated Depreciation		9450

Bitmap Bitmap Bitmap Bitmap Note 1
Working for Gain on Sale of motor carrier equipment
Original Cost	130000
Accumulated dep	67000
Written down value	63000
Sale price	70000
Gain on sale	7000
	Bitmap Bitmap Bitmap Bitmap
Note 2
Working for Loss on Sale of Building
Original Cost	650000
Accumulated dep	145000
Written down value	505000
Sale price	500000
Loss on sale	-5000
Note 3
Depreciation on New Motor Carrier Equipment
Cost price	176000
Useful life	6 years
Salvage value - 5 % of cost	8800
Depreciation rate	16.67%
Double reducing rate	33.33%
Depreciation for the year	58,666.67
Note 4
Depreciation on New Building
Cost price	420000
Useful life	40 years
Salvage value - 10 % of cost	42000
Net Depreciable amount	378000
Depreciation for the year	9450