Chapter 9: Q2RQ (page 525)
Plant assets are recorded at historical cost. What does the historical cost of a plant asset include?
Yes, Plant assets are recorded at historical cost.
Historical costs include the entire amount paid to acquire the assets and make them ready for use.
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What is the depreciation method that is used for tax accounting purposes? How is it different than the methods that are required by GAAP to be used for financial accounting purposes?
Core Telecom provides communication services in Iowa, Nebraska, the Dakotas, and Montana. Core purchased goodwill as part of the acquisition of Surety Wireless Company,which had the following figures:
Book value of assets \( 700,000
Market value of assets 1,000,000
Market value of liabilities 510,000
Requirements
1. Journalize the entry to record Core’s purchase of Surety Wireless for \)280,000 cashplus a $420,000 note payable.
2. What special asset does Core’s acquisition of Surety Wireless identify? How shouldCore Telecom account for this asset after acquiring Surety Wireless? Explain in detail
Question:In 150 words or fewer, explain the different methods that can be used to calculate depreciation. Your explanation should include how to calculate depreciation expense using each method.
Exchanging plant assets Micron Precision, Inc. purchased a computer for \(2,500, debiting Computer Equipment. During 2016 and 2017, Micron Precision, Inc. recorded total depreciation of \)1,600 on the computer. On January 1, 2018, Micron Precision, Inc. traded in the computer for a new one, paying \(2,100 cash. The fair market value of the new computer is \)3,900. Journalize Micron Precision, Inc.’s exchange of computers. Assume the exchange had commercial substance.
During 2018, Lora Company completed the following transactions:
Jan. 1 Traded in old office equipment with book value of \(55,000 (cost of\)129,000 and accumulated depreciation of \(74,000) for new equipment.Lora also paid \)55,000 in cash. Fair value of new equipment is \(116,000.Assume the exchange had commercial substance.
Apr. 1 Sold equipment that cost \)12,000 (accumulated depreciation of \(1,000through December 31 of the preceding year). Lora received \)7,100 cashfrom the sale of the equipment. Depreciation is computed on a straightlinebasis. The equipment has a five-year useful life and a residual valueof \(0.
Dec. 31 Recorded depreciation as follows:
Office equipment is depreciated using the double-declining-balancemethod over four years with a \)7,000 residual value.
Record the transactions in the journal of Lora Company.
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