1. Record the transactions in the journal of Gretta Chung Associates. Journal DA
ID: 2349427 • Letter: 1
Question
1. Record the transactions in the journal of Gretta Chung Associates.Journal
DATE ACCOUNTS AND EXPLANATIONS DEBIT CREDIT
2012
Jan 1 Traded in old office equipment with book value of $40,000 (cost of $132,000
and accumulated depreciation of $92,000) for new equipment. Chung also
paid $80,000 in cash. Fair value of the new equipment is $119,000.
Apr 1 Acquired land and communication equipment in a group purchase. Total
cost was $270,000 paid in cash. An independent appraisal valued the land
at $212,625 and the communication equipment at $70,875.
Sep 1 Sold a building that cost $555,000 (accumulated depreciation of $255,000
through December 31 of the preceding year). Chung received $370,000
cash from the sale of the building. Depreciation is computed on a
straight-line basis. The building has a 40-year useful life and a residual
value of $75,000.
Dec 31 Recorded depreciation as follows:
?Communication equipment is depreciated by the straight-line method over a
five-year life with zero residual value.
?Office equipment is depreciated using the double-declining-balance method over
five years with $2,000 residual value.
2013
Jan 1 The company identified that the communication equipment suffered significant
decline in value. The fair value of the communication equipment was
determined to be $55,000.
Explanation / Answer
2012 Jan 1 Traded in old office equipment with book value of $40,000 (cost of $132,000 and accumulated depreciation of $92,000) for new equipment. Chung also paid $80,000 in cash. Fair value of the new equipment is $119,000. 1/1/12 New equipment (Dr.) 119000 Accumulated depreciation (Dr.) 92000 Loss on sale of equipment (Dr.) 1000 (80000+132000-92000-119000; plug so debits and credits equal; a debit plug means its a loss, a credit means a gain) Old equipment (Cr.) 132000 Cash (Cr.) 80000 Apr 1 Acquired land and communication equipment in a group purchase. Total cost was $270,000 paid in cash. An independent appraisal valued the land at $212,625 and the communication equipment at $70,875. 4/1/12 Land (Dr.) 202500 Communication equipment (Dr.) 67500 Cash (Cr.) 270000 Allocation of cost to land = 212625/283500 = 75% * 270000 = 202500 Allocation of cost to comm. equip. = 70875/283500 = 25% * 270000 = 67500 Sep 1 Sold a building that cost $555,000 (accumulated depreciation of $255,000 through December 31 of the preceding year). Chung received $370,000 cash from the sale of the building. Depreciation is computed on a straight-line basis. The building has a 40-year useful life and a residual value of $75,000. 9/1/12 Cash (Dr.) 370000 Accumulated depreciation (Dr.) 267000 Building (Cr.) 555000 Gain on sale of building (Cr.) 82000 Calculation of additional years depreciation = (555000-75000)/40 = 12000 Dec 31 Recorded depreciation as follows: ?Communication equipment is depreciated by the straight-line method over a five-year life with zero residual value. ?Office equipment is depreciated using the double-declining-balance method over five years with $2,000 residual value. Depreciation Expense (Dr.) 57725 Accumulated depreciation - communication equipment (Cr.) 10125 Accumulated depreciation - office equipment (Cr.) 47600 Com. equip = (67500-0)/5 = 13500 * 9/12 = 10125 Office equip = Double-declining rate: 1/5 = 20% * 2 = 40% 119000 * 40% = 47600 2013 Jan 1 The company identified that the communication equipment suffered significant decline in value. The fair value of the communication equipment was determined to be $55,000. Impairment loss (Dr.) 2375 Communication equipment (Cr.) 2375 Calculation of impairment: 67500 - 10125= 57375 - 55000 = 2375 Hope this helps!
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