Solutions Guide:
P10-5B At December 31, 2010, Starkey Company reported the following as plant assets: Land 2,000,000 Buildings $20,000,000 Less: Accumulated Depreciation - Buildings 8,000,000 12,000,000 Equipment 30,000,000 Less: Accumulated Depreciation - Equipment 4,000,000 26,000,000 Total plant assets 40,000,000 During 2011, the following selected cash transactions occurred: Apr 1 Purchased land for $1,200,000 May 1 Sold equipment that cost $420,000 when purchased on January 1, 2007. The equipment was sold for $240,000 Jun 1 Sold land purchased on June 1, 20001, for $1,000,000 The land cost was $340,000 Jul 1 Purchased equipment of $1,100,000 Dec 31 Retired equipment that cost $300,000 when purchased on December 31, 2001. No salvage value was received. Instructions: (a) Journalize the above transactions. Starkey uses straight-line depreciation for buildings and equipment. The buildings are estimated to have a 50-year life and no salvage value. The equipment is estimated to have a 10-year useful life and no salvage value. Update depreciation on assets disposed of at the time of sale or retirement. (a) Apr 1 Acct title Amount Acct title Amount May 1 Acct title Amount Acct title Amount Area for computation Account title Amount Account title Amount Account title Amount Account title Amount Cost $750,000 Title Amount Title Formula Title Amount Title Formula Jun 1 Account title Amount Account title Amount Account title Amount Jul 1 Account title Amount Account title Amount Dec 31 Account title Amount Account title Amount Area for computation Dec 31 Account title Amount Account title Amount Title - Area for computation Amount Title - Area for computation Amount Book value Formula (b) Record adjusting entries for depreciation for 2011. Dec 31 Account title Amount Account title Amount Area for computation Dec 31 Account title Amount Account title Amount Title / computation area Amount Title / computation area Amount Total: Formula (c) Prepare the plant assets section of Starkey's balance sheet at December 31, 2011. STARKEY COMPANY Partial Balance Sheet December 31, 2011 Plant Assets Account title Amount Account title Amount Account title Amount Formula Account title Amount Account title Amount Formula Total plant assets Formula T Accounts below for illustrative information. Land Buildings Accumulated Depreciation - Buildings Equipment Accumulated Depreciation - Equipment
(a) Apr. 1 Land 1,200,000
Cash 1,200,000
May 1 Depreciation Expense 14,000
Accumulated Depreciation—
Equipment 14,000
($420,000 X 1/10 X 4/12)
1 Cash 240,000
Accumulated Depreciation—
Equipment 182,000
Equipment 420,000
Gain on Disposal 2,000
Cost $420,000
Accum. depreciation—
equipment 182,000
[($420,000 X 1/10 X 4) + $14,000]
Book value 238,000
Cash proceeds 240,000
Gain on disposal $ 2,000
June 1 Cash 1,000,000
Land 340,000
Gain on Disposal 660,000
July 1 Equipment 1,100,000
Cash 1,100,000
Dec. 31 Depreciation Expense 30,000
Accumulated Depreciation—
Equipment 30,000
($300,000 X 1/10)
31 Accumulated Depreciation—
Equipment 300,000
Equipment 300,000
Cost $300,000
Accum. depreciation—
equipment 300,000
($300,000 X 1/10 X 10)
Book value $ 0
(b) Dec. 31 Depreciation Expense 400,000
Accumulated Depreciation—
Buildings 400,000
($20,000,000 X 1/50)
31 Depreciation Expense 2,983,000
Accumulated Depreciation—
Equipment 2,983,000
($29,280,000* X 1/10) $2,928,000
[($1,100,000 X 1/10) X 6/12] 55,000
$2,983,000
*($30,000,000 – $420,000 – $300,000)
(c) STARKEY COMPANY
Partial Balance Sheet
December 31, 2011
Plant Assets*
Land $2,860,000
Buildings $20,000,000
Less: Accumulated depreciation—
buildings 8,400,000 11,600,000
Equipment 30,380,000
Less: Accumulated depreciation—
equipment 6,545,000 23,835,000
Total plant assets $38,295,000
*See T-accounts which follow.
LandBal. 2,000,000
Apr. 1 1,200,000 / June 1 340,000
Bal. 2,860,000
Buildings
Bal. 20,000,000
Bal. 20,000,000
Accumulated Depreciation—Buildings
Bal. 8,000,000
Dec. 31 adj. 400,000
Bal. 8,400,000
Equipment
Bal. 30,000,000
July 1 1,100,000 / May 1 420,000
Dec. 31 300,000
Bal. 30,380,000
Accumulated Depreciation—Equipment
May 1 182,000
Dec. 31 300,000 / Bal. 4,000,000
May 1 14,000
Dec. 31 30,000
Dec. 31 adj. 2,983,000
Bal. 6,545,000