Problem 5. At December 31, 2016, Ruiz Corporation reported the following plant a
ID: 2550977 • Letter: P
Question
Problem 5. At December 31, 2016, Ruiz Corporation reported the following plant assets. Land Buildings Less: Accumulated depreciation-buildings 12,100,000 14,400,000 Equipment Less: Accumulated depreciation equipment 5,000,000 35,000,000 Total plant assets $3,000,000 $26,500,000 40,000,000 $52,400,000 During 2017, the following selected cash transactions occurrecd. Purchased land for $2,200,000. Sold equipment that cost $660,000 when purchased on January 1, 2010. The equipment was sold for $200,000. Sold land for $1,800,000. The land cost $700,000. Apr. 1 1-May June 1Explanation / Answer
Journal Entry
Date
Account titles and explanations
Debit
Credit
Apr 1
Land
2,200,000
Cash
2,200,000
(to record purchase of land)
May 1
Depreciation expenses – equipment
22,000
Accumulated depreciation – equipment
22,000
(to record depreciation expense on the equipment sold) (W.N 1)
Cash
200,000
Accumulated Depreciation – equipment
484,000
Equipment
660,000
Gain on sale of equipment
24,000
(to record the sale of equipment)(W.N 2)
June 1
Cash
1,800,000
Land
700,000
Gain on sale on land
1,100,000
(to record sale of land)
July 1
Equipment
1,300,000
Cash
1,300,000
(to record purchase of equipment)
Dec. 31
Depreciation expenses – equipment
50,000
Accumulated depreciation – equipment
50,000
(to record depreciation expense on the equipment retire) (500,000/10)
Dec. 31
Accumulated Depreciation – equipment
500,000
Equipment
500,000
(to record retirement of equipment) (W.N 3)
Dec. 31
Depreciation – Buildings
662,500
Accumulated Depreciation- Buildings
662,500
(to record depreciation on building during the year 2017) (W.N 4)
Dec. 31
Depreciation- Equipment
3,949,000
Accumulated Depreciation – Equipment
3,949,000
(to record the depreciation on equipment during the year 2017) (W.N 5)
Working Notes
1. Calculation of Depreciation on equipment sold on May 1, 2017
Cost of equipment as on 1/1/2010
660,000
Estimated life
10 years
Depreciation per year (660,000/10)
66,000
Accumulated depreciation till December 2016 i.e. for 7 years (66,000*7)
462,000
Depreciation during the year 2017 (1/1/17 – 4/30/17)i.e. for 4 months (66,000*4/12)
22,000
2. Calculation of profit and loss on equipment sold on May 1, 2017
Accumulated depreciation till December 2016
462,000
Depreciation during the year 2017
22,000
A. Total accumulated depreciation till 5/1/2017
484,000
Profit and loss on sale of equipment
Cost of equipment
660,000
Less: Accumulated depreciation (A)
484,000
B. Book Value as on 5/1/2017
176,000
C. Sales proceeds
200,000
D. Profit/(Loss) on sale of equipment (C-B)i.e. (200,000 -176,000)
24,000
3. Equipment purchase on 12/31/2007 was retired on 12/31/2017 i.e. 10 years from 12/31/20007.
Estimated useful life of equipment was 10 years.
So, the equipment was full depreciated on 12/31/2017.
4. Depreciation on buildings as on 12/31/2017
Cost of Buildings
26,500,000
Estimated useful life
40 years
Depreciation per year (26,500,000/40)
$662,500
5. Depreciation on equipment as on 12/31/2017
Cost as on 12/31/2016
40,000,000
Less: Cost of Equipment sold
660,000
Less: Cost of equipment retired
500,000
Cost of Old equipment 12/31/2017
38,840,000
Life of equipment
10 years
A. Depreciation on equipment (38,840,0000/10)
3,884,000
New equipment purchased on Jul y 1
1,300,000
Depreciation on new equipment per year (1,300,000/10)
130,000
B. Depreciation on new equipment for 6 months (July – Dec) (130,000*6/12)
65,000
Total Depreciation on equipment (A+B) (3,884,000 + 65,000 )
3,949,000
Date
Account titles and explanations
Debit
Credit
Apr 1
Land
2,200,000
Cash
2,200,000
(to record purchase of land)
May 1
Depreciation expenses – equipment
22,000
Accumulated depreciation – equipment
22,000
(to record depreciation expense on the equipment sold) (W.N 1)
Cash
200,000
Accumulated Depreciation – equipment
484,000
Equipment
660,000
Gain on sale of equipment
24,000
(to record the sale of equipment)(W.N 2)
June 1
Cash
1,800,000
Land
700,000
Gain on sale on land
1,100,000
(to record sale of land)
July 1
Equipment
1,300,000
Cash
1,300,000
(to record purchase of equipment)
Dec. 31
Depreciation expenses – equipment
50,000
Accumulated depreciation – equipment
50,000
(to record depreciation expense on the equipment retire) (500,000/10)
Dec. 31
Accumulated Depreciation – equipment
500,000
Equipment
500,000
(to record retirement of equipment) (W.N 3)
Dec. 31
Depreciation – Buildings
662,500
Accumulated Depreciation- Buildings
662,500
(to record depreciation on building during the year 2017) (W.N 4)
Dec. 31
Depreciation- Equipment
3,949,000
Accumulated Depreciation – Equipment
3,949,000
(to record the depreciation on equipment during the year 2017) (W.N 5)
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