2. Roberts Company is making significant improvements to some of its assets, as

Question

2.   Roberts Company is making significant improvements to some of its assets, as follows.

1.

It is replacing the old furnace that cost $40,000 and has a $15,000 book value with a new furnace/air conditioner combination. Roberts spent $50,000 in cash and was given a $4,000 trade-in on the old furnace.

2.

The delivery van is being updated with a new $8,000 engine that will increase the useful life of the van by 2 years. The van originally cost $36,000 and has accumulated depreciation of $26,000.

Required:

a.

Record the appropriate journal entry for replacing the furnace.

b.

When recording the transaction associated with the van there is a choice between two methods. Provide the journal entries for each method.

1.

It is replacing the old furnace that cost $40,000 and has a $15,000 book value with a new furnace/air conditioner combination. Roberts spent $50,000 in cash and was given a $4,000 trade-in on the old furnace.

2.

The delivery van is being updated with a new $8,000 engine that will increase the useful life of the van by 2 years. The van originally cost $36,000 and has accumulated depreciation of $26,000.

Explanation / Answer

a. Furnace Conditioner (50000 + 4000)                     54000

Accumulated depreciation (40000 - 15000)              25000

Loss :(4000 – 15000)                                                11000

                           Furnace                                                                                        40000

Cash                                                                                             50000

b. Accumulated Depreciation or Van               8000

Cash                                                                           8000

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