During the current year, Blake Construction disposed of plant assets in the following transactions:
Jan. 6 | Equipment costing $18,000 was given to a scrap dealer at no charge. At the date of disposal, accumulated depreciation on the office equipment amounted lo $16,800. |
Mar. 3 | Blake sold land and a building for $800,000. receiving $100,000 cash and a five-year.12 percent note receivable for the remaining balance. Blake’s records showed the following amounts: Land. $50,000; Buildings. $680,000; Accumulated Depreciation: Building (at the date of disposal), $250,000. |
Jul. 10 | Blake traded in an old truck for a new one. The old truck had cost $26,000. and its accumulated depreciation amounted to $22,000. The list price of the new truck was $37,000. but Blake received a $12,000 trade-in allowance for the old truck and paid only $25,000 in cash. Blake includes trucks in its Vehicles account. |
Sept. 3 | Blake traded in its old computer system as part of the purchase of a new system. The old system had cost $12,000. and its accumulated depreciation amounted to $9,000. The new computer’s list price was $10,000. Blake accepted a trade-in allowance of $400 for the old computer system, paying $ 1,000 down in cash and issuing a one-year, 10 percent note payable for the $8,600 balance owed. |
Instructions
a. Prepare journal entries to record each of the disposal transactions. Assume that depreciation expense on each asset has been recorded up to the date of disposal. Thus you need not update the accumulated depreciation figures stated in the problem.
b. Will the gains and losses recorded in part a above affect the gross profit reported in Blake’s income statement? Explain.
c. Explain how the financial reporting of gains and losses on plant assets differs from the financial reporting of unrealized gains and losses on marketable securities discussed in Chapter 7.
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