Question

(Disposition of Assets) On April 1, 2017, Gloria Estefan Company received a condemnation award of \(430,000 cash as compensation for the forced sale of the company’s land and building, which stood in the path of a new state highway. The land and building cost \)60,000 and \(280,000, respectively, when they were acquired. At April 1, 2017, the accumulated depreciation relating to the building amounted to \)160,000. On August 1, 2017, Estafan purchased a piece of replacement property for cash. The new land cost \(90,000, and the new building cost \)400,000.

Instructions

Prepare the journal entries to record the transactions on April 1 and August 1, 2017.

Short answer

1. Gain on disposable of Plant and Assets is $250,000.
2. The value of the Building is $400,000.

Step-by-step solution

Meaning of Depreciation

Depreciation can be stated as the decline in the value of an asset over a useful period. All assets depreciate over time, except for land, whose value increases with the passage of time. Among the various methods of depreciation, straight-line depreciation is considered to be the simplest and error-free method.

(a) Preparing journal entry for April 1

Date	Particular	Debit ($)	Credit ($)
April 1, 2017	Cash	430,000
	Accumulated Depreciation-Buildings	160,000
	Land		60,000
	Building		280,000
	Gain on Disposal of Plant Assets		250,000

Computation of gain on disposal of Plant Asset

Computation of gain
Cash received	$430,000
Book value of land $ 60,000
Book value of buildings 120,000
Book value of land and building	(180,000)
Gain on disposal	$250,000

(b) Preparing journal entry for August 1

Date	Particular	Debit ($)	Credit ($)
Aug. 1, 2017	Land	90,000
	Buildings	400,000
	Cash		490,000