Answer:
Graham Freightway
Journal Entries:
Jan. 1:
Debit New Motor-carrier Equipment $236,000
Debit Accumulated Depreciation $92,000
Credit Old Motor-carrier Equipment $131,000
Credit Cash Account $173,000
Credit Gain on Equipment Disposal $24,000
To record the trade-in of old equipment for a new one.
July 1:
Debit Cash Account $90,000
Debit Note Receivable $590,000
Debit Accumulated Depreciation 286,750
Credit Building $580,000
Credit Gain on Building Disposal $386,750
To record the sale of building.
Oct. 31:
Debit Land $204,000
Debit Building $396,000
Credit Cash Account $600,000
To record the purchase of land and building for cash.
Dec. 31:
Depreciation Expense on New Motor-carrier Equipment $34,080
Credit Accumulated Depreciation on Equipment $34,080
To record the depreciation expense for the year.
Dec. 31:
Depreciation Expense on Building $2,225
Credit Accumulated Depreciation on Building $2,225
To record the depreciation expense for the 3 months.
Explanation:
a) Data and Calculations:
1. Gain on Equipment of $24,000 is based on the difference between the net book value of the equipment and the trade-in cost.
2. The same is also applicable on the Building.
3. Allocation of the purchased cost of $600,000:
Land = 234,600/690,000 * $600,000 = $204,000
Building = 455,600/690,000 * $600,000 = $396,000
4. Depreciation on New Motor-carrier equipment:
Depreciable amount = $213,000 ($236,000 - 23,000)
Useful life = 1 million miles
Estimated residual value = $23,000
Depreciation rate = $213,000/ 1 million = $0.213
1st year depreciation = $0.213 * 160,000 = $34,080
5. Depreciation on Building:
Depreciable amount = $356,000 ($396,000 - 40,000)
Useful life = 40 years
Estimated residual value = $40,000
Depreciation rate = $8,900 ($356,000/40)
For three months, depreciation expense = $8,900/12 * 3 = $2,225
