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Plant Assets - Acquisition, Disposal and Depreciation

Please see attached file.

At December 31, 2007 Ruiz Corporation reported the following plant assets

Land $ 3,000,000
Buildings $26,500,000
Less Accumulated Dep. Buildings $12,100,000 $ 14,400,000

Equipment $ 40,000,000
Less: Accumulated Dep. Equip. $ 5,000,000 $ 35,000,000

Total Plant Assets $ 52,400,000

During 2008, the following selected cash transactions occurred:

Apr. 1 purchased land for $ 2,200,000
May 1 sold equipment that cost $660,000 when purchased on January 1, 2001. The equipment was sold for $ 200,000.
June 1 sold land for $ 1,800,000. The land cost $ 700,000
July 1 purchased equipment for $ 1,300,000.
Dec 31 retired equipment that cost 500,000 when purchased on December 31, 1998. No salvage value was received.

A) Journalize the transactions, Ruiz uses straight line depreciation for buildings and equipment. The buildings are estimated to have a 40 year useful life and no salvage value; the equipment is estimated a 10 year useful life and no salvage value. Update depreciation on assets disposed of at the time of sale or retirement.

B) Record adjusting entries for 2008

C) Prepare the plant assets section of Ruiz balance sheet at December 31, 2008

Attachments

Solution Preview

Please see the attached file.

a. Journal Entries
April 1 Land 2,200,000 Land is purchased for cash
Cash 2,200,000

May 1 Depreciation Expense 22,000 The equipment is sold, we adjust the depreciation
Accumulated Depreciation- account for 4 months till May 1, given that the
Equipment 22,000 life of equipment is 10 years
($660,000 X 1/10 X 4/12)

1 Cash 200,000
Accumulated Depreciation-
Equipment 484,000
Equipment 660,000
Gain on Disposal 24,000

Cost $660,000 The calculation of gain
Accum. depr.-Equipment 484,000 The accumulated depreciation is for 7 years + 4 months
[($660,000 X 1/10) X 7 + $22,000)]
Book value 176,000
Cash proceeds ...

Solution Summary

The solution explains the journal entries related to plant assets - acquisition, disposal and depreication. It also explains how to prepare the plant assets section of the balance sheet

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