Chapter 9

Long-Lived Tangible and Intangible Assets

PowerPoint Author:
Brandy Mackintosh, CPA, CA

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 Learning Objective 9-1

Define, classify, and explain

the nature of long-lived assets.

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 Definition and Classification

For use over one or more years

Not intended for resale

Examples
 Land
Tangible Intangible
 Assets subject to depreciation
 Buildings and equipment
Physical No Physical
Substance Substance
 Furniture and fixtures

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 Learning Objective 9-2

Apply the cost principle to

the acquisition of long-lived
assets.

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 Acquisition of Tangible Assets
Acquisition cost includes:
1. purchase price, and
2. all reasonable and necessary
expenditures needed to prepare
the asset for its intended use.

Recording costs as
assets is called
capitalizing the costs.
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 Acquisition of Tangible Assets, continued
 Purchase cost
Land
 Legal fees
 Survey fees
 Title search fees

 Purchase/construction cost
 Legal fees
Buildings  Appraisal fees
 Architect fees

 Purchase/construction cost
 Sales taxes
Equipment
 Transportation costs
 Installation costs

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 Acquisition of Tangible Assets
Basket Purchase
The total cost of a combined
purchase of land and building is
allocated in proportion to their
relative market values.

On January 1, Jones
Appraised % of purchased
Purchase land and
Apportioned
AssetbuildingValue
for $400,000
[Link]
The appraised
Cost
values are
a building b* ($325,000),
c and land
b × c
Land $ 175,000 ($175,000).
35% × $ 400,000 = $ 140,000
Building 325,000 65% × 400,000 = 260,000
Total $ 500,000 100% $ 400,000
How much of the $400,000 purchase price will
be÷ assigned
* $175,000 to the building and land
$500,000 = 35%
accounts?
$325,000 ÷ $500,000 = 65%

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 Acquisition of Tangible Assets
Component Allocation
IFRS takes the idea of a
basket purchase one step
further. The cost of an
individual asset’s
components is allocated
among each significant
component and then
depreciated separately over
that component’s useful life.

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 Acquisition of Tangible Assets Example
Cedar Fair purchased a new ride for $26,000,000, less a
$1,000,000 discount. Cedar Fair paid $125,000 for
transportation and $625,000 for installation of the ride.
Prepare the journal entry for the acquisition assuming Cedar
Fair signed a note payable for the new roller coaster and
paid cash for the transportation and installation costs.
1 Analyze
Assets = Liabilities + Stockholders’ Equity
Cash -750,000 Note
Equipment +25,750,000 Payable +25,000,000

2 Record
Equipment 25,750,000
Cash 750,000
Note Payable 25,000,000

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 Maintenance Costs Incurred
During Use
Type of Accounting
Expenditure Identifying Characteristics Treatment
Ordinary 1. Relatively small, recurring expenditures Expense
repairs and that maintain normal operating condition
maintenance 2. Do not increase productivity
3. Do not extend life beyond original
estimate
Extraordinary 1. Relatively large, infrequent expenditures Capitalize
repairs, such as major overhauls or replacements
replacements, of major components
and additions 2. May extend useful life
3. May increase productivity or efficiency

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 Depreciation Expense
Depreciation is a cost allocation process that matches costs
of operational assets with periods benefited by their use.

Acquisition
Expense
Cost Cost Allocation
Balance Sheet Income Statement

Depreciation Depreciation for Income

Expense the current year Statement

Accumulated Total of depreciation Balance

Depreciation to date for an asset Sheet
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 Depreciation Expense Example
The effects of $125 of depreciation on the accounting
equation and the journal entry to record them follow:
1 Analyze
Assets = Liabilities + Stockholders’ Equity
Accumulated Depreciation
Depreciation (+xA) -125 Expense (+E) -125

2 Record
Depreciation Expense 125
Accumulated Depreciation (+xA) 125

Depreciation calculations require three amounts for each asset:

 Acquisition cost.
 Estimated useful life.
 Estimated residual value.

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 Depreciation Expense Example, continued

2015 Depreciation

Includes $125 for 2015

Book value 2015
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 Learning Objective 9-3

Apply various depreciation

methods as economic benefits
are used up over time.

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 Depreciation Methods
 Straight-line

 Units-of-production
 Declining balance

We will use the following information to illustrate

the three methods of depreciation:
At the beginning of the year, Cedar Fair purchased
a new go-kart Ride for $62,500. The ride has an
estimated useful life of 3 years or 100,000 miles
and an estimated residual value of $2,500.
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 Straight-Line Method

1 $20,000 per year

($62,500 - $2,500) × =
3

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 Units-of-Production Method

The ride has a 100,000-mile estimated useful life.

If the ride is used 30,000 miles in the first year,
what is the amount of depreciation expense?

30,000 $18,000
($62,500 - $2,500) × =
100,000

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 Units-of-Production Method,
continued

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 Declining-Balance Method

What is the amount of amount of depreciation

for each of the first two years?
2 $41,667
First Year ($62,500 - $0) × =
3
2 $13,889
Second Year ($62,500 - $41,667) × =
3
Cost – Accumulated Depreciation
Annual computation ignores residual value.
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 Double-Declining-Balance Method

2 $4,629
Third Year ($62,500 - $55,556) × =
3

Depreciation expense is limited to the amount that

reduces book value to the estimated residual value.

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 Summary of Depreciation
Methods

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 Partial Year Depreciation
Calculations
When a plant asset is acquired
during the year, depreciation is
calculated for the fraction of the
year the asset is owned.

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 Tax Depreciation

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 Learning Objective 9-4

Explain the effect of asset

impairment on the financial
statements.

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 Asset Impairment Losses

An asset impairment is accounted for in two steps:

(1) eliminate the asset’s Accumulated Depreciation against the asset

account

(2) write down the asset to its fair value (what it is worth).

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 Asset Impairment Loss Example
Cedar Fair recorded an impairment loss of $8,600,000 on equipment.

The Shoot-the-Rapids ride originally cost $10.6 million when it

opened in 2010. When the ride was closed in 2015, its
accumulated Depreciation was $2.0 million, so the first step was
to net the $2.0 million against the Equipment account, as
follows:
1 Analyze
Assets = Liabilities + Stockholders’ Equity

Equipment -2,000,000
Accumulated
Depreciation(-xA)
+2,000,000

2 Record
Accumulated Depreciation (-xA) 2,000,000
Equipment 2,000,000

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 Asset Impairment Loss Example, continued
After the first step, the asset account showed a book value
of $8.6 million ($10.6 million cost − $2.0 million of
accumulated depreciation). The second step was to write
down this balance to the asset’s fair value, which in this
case is presumed to be $0. The accounting equation
effects and journal entry for this second step follow:

1 Analyze
Assets = Liabilities + Stockholders’ Equity
Equipment -8,600,000 Impairment
Loss (+E) -8,600,000

2 Record
Impairment Loss (+E) 8,600,000
Equipment 8,600,000

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 Learning Objective 9-5

Analyze the disposal of long-

lived tangible assets.

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 Disposal of Tangible Assets

 Update depreciation to date of disposal.

 Record the disposal.

dr Cash (+A)
dr Accumulated Depreciation (-xA) Book
cr Equipment (-A) value
cr Gain on Disposal (+R, +SE)

Gain if cash received is greater than asset’s book value

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 Disposal of Tangible Assets, continued

 Update depreciation to date of disposal.

 Record the disposal.
dr Cash (+A)
dr Loss on Disposal (+E, -SE)
dr Accumulated Depreciation (-xA) Book
cr Equipment (-A) value

Loss if cash received is less than asset’s book value

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 Disposal of Tangible Assets Example
Cedar Fair sold one of its junior roller coasters for $50,000 cash
at the end of its 6th year of use. The equipment originally cost
$100,000, and was depreciated using the straight-line method
with zero residual value and a useful life of 10 years.

The amount of depreciation per

The amount of depreciation per
year is:
year is:
a. $0.
a. $0.
b. $5,000. Annual Depreciation:
b. $5,000.
c. $10,000. ($100,000 - $0) ÷ 10 Years
c. $10,000.
d. $20,000. = $10,000 per year
d. $20,000.
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 Disposal of Tangible Assets Example, continued
Cedar Fair sold one of its junior roller coasters for $50,000 cash
at the end of its 6th year of use. The equipment originally cost
$100,000, and wasAccumulated
depreciated using the straight-line
Depreciation = method
with zero residual value and a useful life of 10 years.
(6 yrs. × $10,000) = $60,000
BV = Cost book
The equipment’s - Accumulated
value atDepreciation
date
BV = of sale -is:
$100,000 $60,000 = $40,000

a.
a. $40,000.
$40,000.
b.
b. $30,000.
$30,000.
c.
c. $17,000.
$17,000.
d.
d. $16,500.
$16,500.
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 Disposal of Tangible Assets Example, extended
Cedar Fair sold one of its junior roller coasters for $50,000 cash
at the end of its 6th year of use. The equipment originally cost
$100,000, and was depreciated using the straight-line method
with zero residual value and a useful life of 10 years.

The equipment’s sale resulted in:

a. a gain of $10,000.
b. a loss of $30,000.
c. a loss of $10,000.
d. a gain of $50,000.
Gain = Cash Received - Book Value
Gain = $50,000 - $40,000 = $10,000
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 Disposal of Tangible Assets
Example, concluded
Analyze and prepare the journal entry to
record Cedar Fair’s sale of the equipment.
1 Analyze
Assets = Liabilities + Stockholders’ Equity
Equipment -100,000 Gain on
Accumulated Disposal (+R) +10,000
Depreciation (-xA) +60,000
Cash
+50,000

2 Record
Cash 50,000
Accumulated Deprecation (-xA) 60,000
Equipment 100,000
Gain on Disposal (+R) 10,000

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 Learning Objective 9-6

Analyze the acquisition, use,

and disposal of long-lived
intangible assets.

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 Intangible Assets

Noncurrent assets Often provide

without physical exclusive rights
substance. or privileges.

Intangible
Assets

Useful life is Usually acquired

often difficult for operational
to determine. use.

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 Intangible Assets, continued
Record at current cash
equivalent cost, including
purchase price, legal fees,
and filing fees.

Amortize intangibles with

limited lives over the shorter
of their economic lives or
legal lives using the
straight-line method.

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 Trademarks and Copyrights
A trademark is a symbol, design,
or logo associated with a business.

Internally developed
Purchased trademarks
trademarks have no are recorded at cost.
recorded asset cost.

A copyright is an exclusive right granted by the federal

government to protect artistic or intellectual properties.

Legal life is Amortize cost

life of creator over the period
plus 70 years. benefited.
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 Patents and Licensing Rights
A patent is an exclusive right granted by the federal
government to sell or manufacture an invention.

Cost is purchase Amortize cost

price plus legal over the shorter of
cost to defend. useful life or 20 years.

Licensing rights grant limited permission to use a product

or service according to specific terms and conditions.

You may be using computer

software that is made
available to you through a
campus licensing agreement.
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 Technology Assets and Franchises

Technology assets include software and web

development work.

Usually used up over a relatively short time (3 – 7 years)

A franchise provides legally protected rights

to sell products or provide services purchased
by a franchisee from the franchisor.

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 Goodwill

Purchase Price > Fair Market Value of Net Assets Acquired

Occurs when one Only purchased

company buys goodwill is an
another company intangible asset

Is impairment
Is not amortized tested and may be
written down

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 Amortization of Limited Life
Intangible Asset
Assume Cedar Fair purchased a patent for an uphill water-coaster
for $800,000 and intends to use it for 20 years. Each year, the company
would record $40,000 in Amortization Expense ($800,000 ÷ 20 years).

1 Analyze
Assets = Liabilities + Stockholders’ Equity
Accumulated Amortization
Amortization (+xA) -40,000 Expense (+E) -40,000

2 Record
Amortization Expense 40,000
Accumulated Amortization (+xA) 40,000

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 Summary of Accounting Rules
for Long-Lived Assets

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 Learning Objective 9-7

Interpret the fixed asset

turnover ratio.

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 Turnover Analysis
Fixed
Net Revenue
Asset =
Turnover Average Net Fixed Assets

This ratio measures the sales

dollars generated by each dollar
invested in fixed assets.

For the year 2015, Cedar Fair had $1,235 of

revenue. End-of-year fixed assets were $1,510
and beginning-of-year fixed assets were $1,530.
(All numbers in millions.)
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 Turnover Analysis, continued

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 Learning Objective 9-8

Describe factors to consider

when comparing companies’
long-lived assets.

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 Impact of Depreciation
Differences
Accelerated depreciation in the early years of an asset’s
useful life results in higher depreciation expense, lower
net income, and lower book value than would result
using straight-line depreciation.

Selling an asset with a low book value, resulting from

accelerated depreciation, might result in a gain.

Selling the same asset with a higher book value,

resulting from straight-line depreciation, might result in
a loss.
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 Supplement 9A

Natural Resources

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 Learning Objective 9-S1

Analyze and report depletion

of natural resources

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 Natural Resources

Depletion is the process of allocating a natural

resource’s cost over the period of its extraction.
Depletion is similar in concept to depreciation.

Depletion that is computed for a period is first added to

inventory and then expensed when the inventory is sold.

Cost of
Total goods sold
Inventory
depletion
for sale
cost Unsold
Inventory
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 Supplement 9B

Changes in Depreciation

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 Learning Objective 9-S2

Calculate changes in
depreciation arising from
changes in estimates or
capitalized cost.

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 Changes in Depreciation
Estimates
Predicted Predicted
residual value useful life

So depreciation
is an estimate.

Over the life of an asset, new information

may come to light that indicates the
original estimates need to be revised.

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 Changes in Depreciation
Estimates Example
Cedar Fair purchased equipment that cost
$60,000,000 with an estimated useful life of
20 years and an estimated salvage value of
$3,000,000. Shortly after the start of year 5,
Cedar Fair changed the initial estimated
useful life to 25 years and lowered the
estimated salvage value to $2,400,000.

Calculate depreciation expense for year 5 and

thereafter using the straight-line method.

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 Changes in Depreciation
Estimates Example, continued
When our estimates change, the new depreciation is:
Book value at Residual value at
date of change – date of change
Remaining useful life at date of change

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 Chapter 9
Solved Exercises

M9-4, M9-5, M9-6, E9-6, E9-7, E9-9

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 M9-4 Computing Book Value (Straight-Line Depreciation)
A machine that cost $400,000 has an estimated residual value of $40,000 and an
estimated useful life of four years. The company uses straight-line depreciation.
Calculate its book value at the end of year 3.

1 $90,000 per year

($400,000 - $40,000) × =
4
Depreciation Accumulated Undepreciated
Expense Depreciation Balance
Year (debit) (credit balance) (book value)
$ 400,000
1 $ 90,000 $ 90,000 310,000
2 90,000 180,000 220,000
3 90,000 270,000 130,000
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 M9-5 Computing Book Value (Units-of-Production Depreciation)
A machine that cost $400,000 has an estimated residual value of $40,000 and an
estimated useful life of 20,000 machine hours. The company uses units-of-
production depreciation and ran the machine 3,000 hours in year 1, 8,000 hours in
year 2, and 6,000 hours in year 3. Calculate its book value at the end of year 3.

1st Year Depreciation

($400,000 - $40,000) × 3,000 = $54,000
20,000
2nd Year Depreciation
8,000 = $144,000
($400,000 - $40,000) ×
20,000
3rd Year Depreciation
6,000 = $108,000
($400,000 - $40,000) ×
20,000

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 M9-5 Computing Book Value (Units-of-Production Depreciation), continued
A machine that cost $400,000 has an estimated residual value of $40,000 and an
estimated useful life of 20,000 machine hours. The company uses units-of-
production depreciation and ran the machine 3,000 hours in year 1, 8,000 hours in
year 2, and 6,000 hours in year 3. Calculate its book value at the end of year 3.

Depreciation Accumulated Undepreciated

Expense Depreciation Balance
Year Hours (debit) (credit balance) (book value)
$ 400,000
1 3,000 $ 54,000 $ 54,000 346,000
2 8,000 144,000 198,000 202,000
3 6,000 108,000 306,000 94,000
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 M9-6 Computing Book Value (Double-Declining-Balance Depreciation)
A machine that cost $400,000 has an estimated residual value of $40,000 and an
estimated useful life of four years. The company uses double-declining-balance
depreciation. Calculate its book value at the end of year 3. Round to the nearest
dollar.

1st Year Depreciation

2 $200,000
($400,000 - $0) × =
4
2nd Year Depreciation
2
($400,000 - $200,000) × = $100,000
4
3rd Year Depreciation
2
($400,000 – ($200,000 + $100,000) × = $50,000
4
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 M9-6 Computing Book Value (Double-Declining-Balance Depreciation),
continued
A machine that cost $400,000 has an estimated residual value of $40,000 and an
estimated useful life of four years. The company uses double-declining-balance
depreciation. Calculate its book value at the end of year 3. Round to the nearest
dollar.

Depreciation Accumulated Undepreciated

Expense Depreciation Balance
Year (debit) (credit balance) (book value)
$ 400,000
1 $ 200,000 $ 200,000 200,000
2 100,000 300,000 100,000
3 50,000 350,000 50,000

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 E9-6 Computing Depreciation under Alternative Methods (1a)
Solar Innovations Corporation bought a machine at the beginning of the year at a
cost of $22,000. The estimated useful life was five years, and the residual value
was $2,000. Assume that the estimated productive life of the machine is 10,000
units. Expected annual production was: year 1, 2,000 units; year 2, 3,000 units;
year 3, 2,000 units; year 4, 2,000 units; and year 5, 1,000 units.
Required:
1. Complete a depreciation schedule for each of the alternative methods.
a. Straight-line.
b. Units-of-production.
c. Double-declining-balance.

1a. Straight-line
Depreciation Accumulated
Expense Depreciation Book
Year (debit) (credit balance) Value
0 $ 22,000
1 ($22,000 - $2,000) x 1/5 = $4,000 $ 4,000 18,000
2 ($22,000 - $2,000) x 1/5 = $4,000 8,000 14,000
3 ($22,000 - $2,000) x 1/5 = $4,000 12,000 10,000
4 ($22,000 - $2,000) x 1/5 = $4,000 16,000 6,000
5 ($22,000 - $2,000) x 1/5 = $4,000 20,000 2,000

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 E9-6 Computing Depreciation under Alternative Methods (1b and 1c)
1b. Units-of-production
Depreciation Accumulated
Expense Depreciation Book
Year (debit) (credit balance) Value
0 $ 22,000
1 ($22,000 - $2,000) x 2,000/10,000 = $4,000 $ 4,000 18,000
2 ($22,000 - $2,000) x 3,000/10,000 = $6,000 10,000 12,000
3 ($22,000 - $2,000) x 2,000/10,000 = $4,000 14,000 8,000
4 ($22,000 - $2,000) x 2,000/10,000 = $4,000 18,000 4,000
5 ($22,000 - $2,000) x 1,000/10,000 = $2,000 20,000 2,000

1c. Double-declining-balance
Depreciation Accumulated
Expense Depreciation Book
Year (debit) (credit balance) Value
0 $ 22,000
1 ($22,000 - $0) x 2/5 = $8,800 $ 8,800 13,200
2 ($22,000 - $8,800) x 2/5 = $5,280 14,080 7,920
3 ($22,000 - $14,080) x 2/5 = $3,168 17,248 4,752
4 ($22,000 - $17,248) x 2/5 = $1,901 19,149 2,851
5 $2,851 - $2,000 = $851 20,000 2,000

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 E9-6 Computing Depreciation under Alternative Methods (2)
Required:
2. Which method will result in the highest net income in year 2? Does this higher
net income mean the machine was used more efficiently under this
depreciation method?

 The method that will result in the highest net income is the
one that reports the lowest depreciation expense.
 Straight-line depreciation method yields the lowest
depreciation expense in year 2 ($4,000), and therefore
results in the highest net income in year 2.
 This higher net income does not mean the equipment was
used more efficiently. It only means a smaller amount of
the
asset’s cost was allocated to depreciation expense in year
2
using straight-line depreciation.
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 E9-7 Computing Depreciation under Alternative Methods
Sonic Corporation purchased and installed electronic payment equipment at its
drive-in restaurants in San Marcos, TX, at a cost of $27,000. The equipment has
an estimated residual value of $1,500. The equipment is expected to process
255,000 payments over its three-year useful life. Per year, expected payment
transactions are 61,200, year 1; 140,250, year 2; and 53,550, year 3.
Required:
Complete a depreciation schedule for each of the alternative methods.
1. Straight-line.
2. Units-of-production.
3. Double-declining-balance.

1. Straight-line

1
($27,000 - $1,500) × = $8,500 per year
3
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 E9-7 Computing Depreciation under Alternative Methods (1)

1. Straight-line

Depreciation Accumulated Undepreciated

Expense Depreciation Balance
Year (debit) (credit balance) (book value)
$ 27,000
1 $ 8,500 $ 8,500 18,500
2 8,500 17,000 10,000
3 8,500 25,500 1,500
$ 25,500

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 E9-7 Computing Depreciation under Alternative Methods (2)

2. Units-of-production

1st Year Depreciation

61,200 = $6,120
($27,000 - $1,500) ×
255,000

2nd Year Depreciation

140,250 = $14,025
($27,000 - $1,500) × 255,000

3rd Year Depreciation

53,550 = $5,355
($27,000 - $1,500) × 255,000
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 E9-7 Computing Depreciation under Alternative Methods (2, continued)

2. Units-of-production

Depreciation Accumulated Undepreciated

Expense Depreciation Balance
Year (Debit) (credit balance) (book value)
$ 27,000
1 6,120 $ 6,120 20,880
2 14,025 20,145 6,855
3 5,355 25,500 1,500
25,500

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 E9-7 Computing Depreciation under Alternative Methods (3)

3. Double-declining-balance

1st Year Depreciation

2 $18,000
($27,000 - $0) × =
3

2nd Year Depreciation

2 $6,000
($27,000 - $18,000) × =
3

3rd Year Depreciation

2 $2,000
[$27,000 – ($18,000 + $6,000)] × =
3
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 E9-7 Computing Depreciation under Alternative Methods (3, continued)

3. Double-declining-balance

Depreciation Accumulated Undepreciated

Expense Depreciation Balance
Year (debit) Balance (book value)
$ 27,000
1 $ 18,000 $ 18,000 9,000
2 6,000 24,000 3,000
3 1,500
2,000 25,500
26,000 1,500
1,000
$ 25,500
26,000

Below residual value

Depreciation expense is limited to the amount that
reduces book value to the estimated residual value.
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 E9-9 Demonstrating the Effect of Book Value on Reporting an Asset
Disposal (Part 1)
FedEx Corporation is the world’s leading express-distribution company. In
addition to its 643 aircraft, the company has more than 57,000 ground vehicles
that pick up and deliver packages. Assume that FedEx sold a delivery truck for
$16,000. FedEx had originally purchased the truck for $28,000 and had recorded
depreciation for three years.
Required:
1. Calculate the amount of gain or loss on disposal, assuming that
Accumulated Depreciation was: (a) $12,000, (b) $10,000, and (c) $15,000.

Case
a b c
Sale price $ 16,000 $ 16,000 $ 16,000
Cost 28,000 28,000 28,000
Less: Accumulated Depreciation 12,000 10,000 15,000
Book Value 16,000 18,000 13,000
Gain (Loss) $ - $ (2,000) $ 3,000

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 E9-9 Demonstrating the Effect of Book Value on Reporting an Asset
Disposal (Part 2 - case a)
Required:
2. Using the following structure, indicate the effects (accounts, amounts, and
+ or -) for the disposal of the truck in each of the three preceding situations.

Assets = Liabilities + Stockholders’ Equity

Case (a) Book Value = $16,000

Assets = Liabilities + Stockholders’ Equity

Cash + 16,000
Equipment -
Accumulated 28,00
0
Depreciation (-xA)

+ 12,000

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 E9-9 Demonstrating the Effect of Book Value on Reporting an Asset Disposal
(Part 2 - case b and c)

Case (b) Book Value = $18,000

Assets = Liabilities + Stockholders’ Equity

Cash + 16,000
Equipment - Loss of Disposal (+E)- 2,000
Accumulated 28,00
0
Depreciation (-xA)

+ 10,000
Case (c) Book Value = $13,000

Assets = Liabilities + Stockholders’ Equity

Cash + 16,000
Equipment - Gain on Disposal (+R) + 3,000
Accumulated 28,00
0
Depreciation (-xA)

+ 15,000
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 E9-9 Demonstrating the Effect of Book Value on Reporting an Asset
Disposal (Part 3)
Required:
3. Based on the three preceding situations, explain how the amount of
depreciation recorded up to the time of disposal affects the amount of gain or
loss on disposal.

The gain or loss reported on disposal is directly affected by the

book value of the asset, which itself is affected by the amount
of depreciation recorded before the disposal. With the same
sale price of $16,000 in each case . . .
 A larger amount of depreciation recorded before disposal
results in lower book value and a gain on disposal (case
1c).
 A smaller amount depreciation recorded before disposal
results in higher book value and a loss on disposal (case
1b).

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 E9-9 Demonstrating the Effect of Book Value on Reporting an Asset
Disposal (Part 4 – case a and b)
Required:
4. Prepare the journal entry to record the disposal of the truck for each situation
in requirement 1.

Case (a) Book value = $16,000

Cash 16,000
Accumulated Depreciation-Equipment(-xA) 12,000
Equipment 28,000

Case (b) Book value = $18,000

Cash 16,000
Accumulated Depreciation -Equipment(-xA) 10,000
Loss on Disposal 2,000
Equipment 28,000

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 E9-9 Demonstrating the Effect of Book Value on Reporting an Asset
Disposal (Part 4 – case c)
Required:
4. Prepare the journal entry to record the disposal of the truck for each situation
in requirement 1.

Case (c) Book value = $13,000

Cash 16,000
Accumulated Depreciation-Equipment (-xA) 15,000
Gain on Disposal 3,000
Equipment 28,000

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 End of Chapter 9

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