Question

Required information The following information applies to the questions displayed below] As part of a major renovation at the beginning of the year, Atiase Pharmaceuticals, Inc. sold shelving units (recorded as Equipment) that were 10 years old for $950 cash. The shelves originally cost $7,000 and had been depreciated on a straight-line basis over an estimated useful life of 10 years with an estimated residual value of $500. 1. Complete the table below, indicating the account, amount, and direction of the effect on disposal. Assume that depreciation has been recorded to the date of sale. (Enter any decreases to Assets, Liabilities, or Stockholders' Equity with a minus sign. Do not round intermed iate calculations.) Stockholder's Equity Liabilities Assets CD

These are all on the same question.

Answer 1

Solution

Atiase Pharmaceuticals

1. Table showing the Effect of disposal:

Assets		=	Liabilities		+	Shareholders' Equity
Equipment	$500	=		0	+	Equity	$500

2. Entry to record sale of shelf units for $950:

Transaction	Account Titles and Explanation	Debit	Credit
1	Cash	$950
	Depreciation Expense	$650
	Accumulated Depreciation - Equipment	$5,850
	Equipment		$7,000
	Gain on Sale of Equipment		$450
	(To record sale of equipment and the resulting gain)

Bridge City Consulting

Transaction	General Journal	Debit	Credit
1	Building	$50,000
	Land	$75,000
	Cash		$125,000
	(To record purchase of land and building; land = 60% x 125,000 = 75,000; building = 125,000 x 40% = 50,000)
2	Repairs and Maintenance	$10,000
	Cash		$10,000
	(To record repairs)

3	Straight line depreciation	$4,700
4a	Land	$75,000
4b	Building	$40,600

Computations:

Book value of land and building at the end of second year:

Land –

Book value would equal cost, as the land is a non-depreciable asset.

Hence, book value at end of year = $75,000

Building –

Book value at end of year 1 –

Depreciation expense = depreciable base x straight line depreciation rate

Depreciable base = cost – residual value

Residual value = $3,000

Cost = $50,000

Useful life = 10 years

Depreciation expense = 50,000 – 3,000 x 1/10 = $4,700

Book value at end of year 1 = 50,000 – 4,700 = $45,300

Book value at end of year 2 –

Depreciation expense = $4,700

(Computed above, the annual depreciation expense under the straight line method would remain constant throughout the useful life of the asset)

Accumulated depreciation at end of second year = 4,700 x 2 = $9,400

Book value = cost – accumulated depreciation

= 50,000 – 9,400 = $40,600