Lesson 18 4

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nadinesullivan

Technology Business

LESSON 18-4
Disposing of Plant Assets

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning

SALE OF A PLANT ASSET FOR
BOOK VALUE

2
page 546

January 6, 20X6. Received cash from sale of display case, $250.00:
original cost, $3,250.00; total accumulated depreciation through
December 31, 20X5, $3,000.00. Receipt No. 4.

1
1. Record an
entry in the
cash receipts
journal to
remove the
original cost.

2
2. Check the type of disposal, and write the
date, and disposal amount in Section 2 of the
plant asset record.

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning

LESSON 18-4

3
RECORDING A PLANT ASSET’S DEPRECIATION
EXPENSE FOR A PARTIAL YEAR

page 547

April 4, 20X7. Recorded a partial year’s depreciation on a safe to
be sold, $60.00. Memorandum No. 31.

1

2

3
1. Debit the depreciation expense account.
2. Credit the accumulated depreciation account.
3. Update Section 3 of the plant asset record.
CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning

LESSON 18-4

4

SALE OF A PLANT ASSET FOR MORE
THAN BOOK VALUE

page 548

April 4, 20X7. Received cash from sale of safe, $425.00: original
cost, $1,800.00; accumulated depreciation through April 4, 20X7,
$1,500.00. Receipt No. 47.

1

1. Remove the
original cost.
Record the gain
on the sale.
Record the cash
received from
the sale.

2
2. Check the type of disposal. Write the date and
disposal amount in Section 2 of the plant asset
record.

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning

LESSON 18-4

5

SALE OF A PLANT ASSET FOR LESS
THAN BOOK VALUE

page 549

October 6, 20X7. Received cash from sale of a computer, $150.00:
original cost, $1,900.00; total accumulated depreciation through
October 1, 20X7, $1,500.00. Receipt No. 281.

1
2
1. Remove the original cost. Record the loss on the
sale. Record the cash received from the sale.
2. Check the type of disposal and write the date and
disposal amount in Section 2.
CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning

LESSON 18-4

6

TERMS REVIEW

page 550

 gain on plant assets
 loss on plant assets

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning

LESSON 18-4

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Exercises 1. Classification of activities Classify each of the following transactions as arising from an operating (O), investing (I), financing (F), or noncash investing/financing (N) activity: ________ a. Received $80,000 from the sale of land ________ b. Received $3,200 from cash sales ________ c. Paid a $5,000 dividend ________ d. Purchased $8,800 of merchandise for cash ________ e. Received $100,000 from the issuance of common stock ________ f. Paid $1,200 of interest on a note payable ________ g. Acquired a new laser printer by paying $650 ________ h. Acquired a $400,000 building by signing a $400,000 mortgage note 2. Indirect calculation of operating cash flows Video Corporation's balance sheet revealed the following account balance information: Account Dec. 31, 20X6 Dec. 31, 20X5 Accounts receivable $52,000 $57,000 Merchandise inventory 75,000 68,000 Accounts payable 21,000 19,500 The accrual-basis net income was $107,000. In computing net income, the company recorded $12,600 of depreciation expense; there were no gains or losses from investing and financing activities. On the basis of the preceding information, calculate Video's cash flows from operating activities by using the indirect method. 3. Indirect calculation of operating cash flows Specialty Services Inc. reported a net income of $110,000 for the year just ended, which includes an $18,000 gain on the sale of long-term investments. The following data were obtained from comparative balance sheets: Oct. 31, 20X2 Oct. 31, 20X1 Trade accounts receivable $245,000 $203,000 Merchandise inventory 230,000 308,000 Accumulated depreciation: equipment 120,000 65,000 Accounts payable 190,000 124,000 Accrued liabilities 38,000 73,000 There were no purchases or disposals of equipment during the year. The long-term investment had a carrying (book) value of $77,000 and was sold for cash on June 15. On the basis of the preceding information, determine the cash provided by operating activities from November 1, 20X1 through October 31, 20X2. The firm uses the indirect method of statement preparation. 4. Overview of direct and indirect methods Evaluate the comments that follow as being true or false. If the comment is false, briefly explain why. a. Both the direct method and the indirect method will produce the same cash flow from operating activities. b. Depreciation expense is added back to net income when the indirect method is used. c. One of the advantages of using the direct method rather than the indirect method is that larger cash flows from financing activities will be reported. d. The cash paid to suppliers is normally disclosed on the statement of cash flows when the indirect method of statement preparation is employed. e. The dollar change in the Merchandise Inventory account appears on the statement of cash flows only when the direct method of statement preparation is used. 5. Statement preparation: Direct method The comparative balance sheets of Village Company follow: VILLAGE COM ...

Exercises1. Classification of activitiesClassify each of the.docx

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Lesson 18 3

nadinesullivan

Week Three Exercise Assignment Inventory 1. Specific identification method . Boston Galleries uses the specific identification method for inventory valuation. Inventory information for several oil paintings follows. Painting Cost 1/2 Beginning inventory Woods $21,000 4/19 Purchase Sunset 21,800 6/7 Purchase Earth 31,200 12/16 Purchase Moon 4,000 Woods and Moon were sold during the year for a total of $35,000. Determine the firm’s a. cost of goods sold. b. gross profit. c. ending inventory. 2. Inventory valuation methods: basic computations . The January beginning inventory of the White Company consisted of 300 units costing $40 each. During the first quarter, the company purchased two batches of goods: 700 Units at $44 on February 21 and 800 units at $50 on March 28. Sales during the first quarter were 1,400 units at $75 per unit. The White Company uses a periodic inventory system. Using the White Company data, fill in the following chart to compare the results obtained under the FIFO, LIFO, and weighted-average inventory methods. FIFO LIFO Weighted Average Goods available for sale $ $ $ Ending inventory, March 31 Cost of goods sold 3. Perpetual inventory system: journal entries . At the beginning of 20X3, Beehler Company implemented a computerized perpetual inventory system. The first transactions that occurred during 20X3 follow: · 1/2/20X3 Purchases on account: 500 units @$6 = $3,000 · 1/15/20X3 Sales on account: 300 units @ $8.50 = $2,550 · 1/20/20X3 Purchases on Account: 200 units @ 5 = $1,000 · 1/25/20X3 Sales on Account: 300 units @ $8.50 = $2,550 The company president examined the computer-generated journal entries for these transactions and was confused by the absence of a Purchases account. a. Duplicate the journal entries that would have appearedon the computer printout under FIFO & LIFO b. Calculate the balance in the firm’s Inventory account under each method. c. Briefly explain the absence of the Purchases account to the company president. 4. Inventory valuation methods: computations and concepts. Wild Riders Surfboard Company began business on January 1 of the current year. Purchases of surfboards were as follows: Date Quantity Unit Cost Total Cost 1/3 100 $125 $12,500 4/3 200 $135 $27,000 6/3 100 $145 $14,500 7/3 100 $155 $15,500 Total 500 $69,500 Wild Riders sold 400 boards at $250 per board on the dates listed below. The company uses a perpetual inventory system. Date Quantity Sold Unit Price Total Sales 3/17 50 $250 $12,500 5/17 75 $250 $18,750 8/10 275 $250 $68,750 Total 400 $100,000 Instructions a. Calculate cost of goods sold, ending inventory, and gross profit under each of the following inventory valuation methods: · First-in, first-out · Last-in, first-out · Weighted average b. Which of the three methods would be chosen if management’s goal is to (1) produce an up-to-date inventory valuation o.

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