Question

On April 1, 2020, Tamarisk Company received a condemnation award of $447,200 cash as compensation for the forced sale of the company’s land and building, which stood in the path of a new state highway. The land and building cost $62,400 and $291,200, respectively, when they were acquired. At April 1, 2020, the accumulated depreciation relating to the building amounted to $166,400. On August 1, 2020, Tamarisk purchased a piece of replacement property for cash. The new land cost $93,600, and the new building cost $416,000.
Prepare the journal entries to record the transactions on April 1 and August 1, 2020.

Answer 1

Answer:

The forced sale is also accounted as disposal and any net gain or loss is reported in income statement. The accounting enteries are given below.

April 1,  2020.

Debit Cash Asset                           $ 447,200

Debit accumulated depreciation  $ 166,400

Credit Land Asset                          $   62,400

Credit Building Asset                     $  291,200

Credit Profit on Disposal                $  260,000

August 1, 2020

Debit Land Asset                          $   93,600

Debit Building Asset                     $ 416,000

Credit Cash Asset                         $ 509,600