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Depreciation of plant assets

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At December 31, 2017, Alpha Corporation reported the following plant assets.

Land $ 3,000,000
Buildings $26,500,000
Less: Accumulated depreciation—buildings 11,925,000 14,575,000
Equipment 40,000,000
Less: Accumulated depreciation—equipment 5,000,000 35,000,000
Total plant assets $52,575,000

During 2018, the following selected cash transactions occurred.

Apr. 1 Purchased land for $2,200,000.
May 1 Sold equipment that cost $600,000 when purchased on January 1, 2011. The equipment was sold for $170,000.
June 1 Sold land for $1,600,000. The land cost $1,000,000.
July 1 Purchased equipment for $1,100,000.
Dec. 31 Retired equipment that cost $700,000 when purchased on December 31, 2008. No salvage value was received.

Prepare the required journal entries related to depreciation.

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Solution Summary

The solution file contains detailed computation of depreciation and its journal entries.

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Step 1: Computation of depreciation expense:

1st Equipment:
Annual depreciation expense for Equipment sold = 600,000/10 years = 60,000 per year
Accumulated depreciation of equipment till sale date = Jan.1, 2011 to May.1, 2018 = 7 years and 4 months = [60,000 per year * 7 years] + [60,000/12 * 4 months]
= 420,000 + 20,000 = 440,000 [of which 420,000 is already expensed as ...

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