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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.
Land
Bal.  2,000,000 June 1    340,000
Apr. 1  1,200,000
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 May 1    420,000
July 1 1,100,000 Dec. 31    300,000
Bal. 30,380,000

Accumulated Depreciation—Equipment
May 1    182,000 Bal.  4,000,000
Dec. 31   300,000 May 1     14,000
Dec. 31     30,000
Dec. 31 adj.  2,983,000
Bal.  6,545,000