PROBLEM 9.4A HITCHCOCK DEVELOPERS a. General Journal Feb 10 Scrapped office equipment; received no salvage value. Apr 1 Sold land and building for a $100,000 cash downpayment and a 5-year, 9% note for the balance. Aug 15 To record trade-in of old truck on new; trade-in allowance exceeded book value by $2,000. Oct 1 Acquired new computer system by trading in old computer, paying part cash, and issuing a 1-year, 8% note payable. Recognized loss equal to book value of old computer ($4,000) minus trade-in allowance ($500). b. c. Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Problem Set A 425 of the Instructions a. Prepare journal entries to record each of the disposal transactions. Assume that depreciation expense on each asset has been recorded up to the date of disposal. Thus, you need not update the accumulated depreciation figures stated in the problem. b. Will the gains and losses recorded in part a affect the gross profit reported in Hitchcock's income statement? Explain. c. Explain how the financial reporting of gains and losses on plant assets differs from the finan- cial reporting of unrealized gains and losses on marketable securities discussed in Chapter 7. ense. pur- for 109.6 During the current year. Reddick Corporation incurred the following expenditures, which must be any dird Hills Hardware purchased new shelving for its to have a 20-year life and no residual value. The following expenditu purchase. with the L09-1, L09-2, L09-3, L09-5 PROBLEM 9.3A Issues involving Alternative Depreciation Methods $12.000 520 780 Cost of the shelving Freight charges Sales taxes Installation of shelving ... Cost to repair shelf damaged during installation 2,700 400 a. Compute depreciation expense for the years 2018 through 2021 under each depreciation Instructions method listed as follows. 1. Straight-line, with fractional years rounded to the nearest whole month. 2. 200 percent declining-balance, using the half-year convention. 3. 150 percent declining-balance, using the half-year convention. b. Hills Hardware has two conflicting objectives. Management wants to report the highest pos- sible earnings in its financial statements, yet it also wants to minimize its taxable income reported to the IRS. Explain how both of these objectives can be met. c. Which of the depreciation methods applied in part a will result in the lowest reported book value at the end of 2021? Is book value an estimate of an asset's fair value? Explain. d. Assume that Hills Hardware sold the old shelving that was being replaced. The old shelving had originally cost $9,000. Its book value at the time of the sale was $400. Record the sale of the old shelving under the following conditions. 1. The shelving was sold for $1,100 cash. 2. The shelving was sold for $175 cash. LO9-5 During the current year, Hitchcock Developers disposed of plant assets in the following transactions. PROBLEM 9.4A Disposal of Plant Assets 112 Feb. 10 Office equipment costing $24,000 was given to a scrap dealer at no charge. At the date of disposal, accumulated depreciation on the office equipment amounted to $21,800. Apr. 1 Hitchcock sold land and a building to Claypool Associates for $900,000, receiving $100,000 cash and a 5-year, 9 percent note receivable for the remaining balance. Hitch- cock's records showed the following amounts: Land, $50,000; Building, $550,000; Accumulated Depreciation: Building (at the date of disposal), $250,000. Aug. 15 Hitchcock traded in an old truck for a new one. The old truck had cost $26,000, and its accumulated depreciation amounted to $18,000. The list price of the new truck was $39,000, but Hitchcock received a $10,000 trade-in allowance for the old truck and paid $28,000 in cash. Hitchcock includes trucks in its Vehicles account. Oct. 1 Hitchcock traded in its old computer system as part of the purchase of a new sys- tem. The old system had cost $15,000, and its accumulated depreciation amounted to $11,000. The new computer's list price was $8,000. Hitchcock accepted a trade-in allowance of $500 for the old computer system, paying $1,500 down in cash and issuing a 1-year, 8 percent note payable for the $6,000 balance owed.
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