At December 31, 2014, Navaro Corporation reported the following plant assets. Du

Question

At December 31, 2014, Navaro Corporation reported the following plant assets. During 2015, the following selected cash transactions occurred. Journalize the transactions. Navaro uses straight-line depreciation for buildings and equipment. The buildings are estimated to have a 40-year useful life and no salvage value; the equipment is estimated to have a 10-year useful life and no salvage value. Update depreciation on assets disposed of at the time of sale or retirement. (Record entries in the order displayed in the problem statement. Credit account titles are automatically indented when amount is entered. Do not indent manually.)

Explanation / Answer

JOURNAL ENTRIES

NAVARO CORPORATION

2015

DATE PARTICULARS DEBITS($) CREDITS($)

WORKING NOTE:

1.COST OF EQUIPMENT ON JAN 1,2008=$8,45,400

DEPRECIATION FOR 1 YEAR=8,45,400/10=$84,540

DEPRECIATION FOR 7 YEARS=$84,540*7=$5,91,780

DEPRECIATION FOR 4 MONTHS=$84,540*4/12=$28,180

TOTAL DEPRECIATION TILL DATE OF SALE=$5,91,780+$28,180=$6,19,960

DEPRECIATED VALUE OF EQUIPMENT AS ON MAY 1,2015=$8,45,400-$6,19,960=$2,25,440

PROFIT ON SALE=$2,39,530-$2,25,440=$14,090

2.COST WHEN PURCHASED ON DEC 31,2005 = $9,86,300

DEPRECIATION FOR 1 YEAR=$9,86,300/10=$98,630

DEPRECIATION FOR 10 YEARS=$98,630*10=$9,86,300

HENCE VALUE OF ASSET IS NIL

APR 1 LAND A/C DR 30,99,800 TO CASH A/C 30,99,800   (BEING LAND PURCHASED) MAY 1 CASH A/C DR 2,39,530 TO PROFIT AND LOSS A/C 14,090 TO EQUIPMENT A/C(NOTE 1) 2,25,440 (BEING EQUIPMENT SOLD) MAR 1 CASH A/C DR 22,54,400 TO LAND A/C 14,09,000 TO PROFIT AND LOSS A/C 8,45,400 (BEING LAND SOLD) JULY 1 EQUIPMENT A/C DR 15,49,900 TO CASH A/C 15,49,900 (BEING EQUIPMENT PURCHASED) DEC 31 NO ENTRY.(NOTE 2)   

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