E8-5

Req 1.
ASSETS = LIABILITIES + STOCKHOLDER'S EQUITY
Date
ACCOUNT AMOUNT ACCOUNT AMOUNT ACCOUNT AMOUNT
Vehicle Equipment + 48,800 Notes Payable (Short Term) + 36,000
1-Jan
Cash - 12,800
Vehicle Equipment + 700
2-Jan
Cash - 700
30-Sep Cash - 38,160 Notes Payable (Short Term) - 36,000 Interest Expense - 2,160

Req 2.
1-Jan Initial Cost 48,800
2-Jan Name and logo printed 700
Acquisition Cost 49,500

Req 3.
49,500 - 4,500
Depreciation Expense for Year 1
5
= 9,000
Req 4.
Q1.
What impact does the interest paid on the 8 percent note have on the cost of the van?
Answer for Q1
The interest paid on September 30, of $2,160, is recorded as an interest under income statement, and
it does affect the cost of Vehicle Equipment

Q2.
Under what circumstances can interest expense be included in acquisition cost?
Answer for Q2

The interest expense can be considered a capital expenditure only in case of constructed assets.

Req 5. Acquisition Cost 49,500

Less: Accumulated Depreciation (annual
dep 9,000 * 2 years) 18,000
Net Book Value at the End of Year 2 31,500
E8-7
Req. 1
Adjusting Entry for 2019
Accounts Dr Cr
Depreciation Expense 7,200
Accumulated Depreciation - Equipment 7,200

Computation of $7,200 is [ ($120,000-$12,000)/15]

Req. 2
Beginning of 2020
Estimated Life 15 years
Less: Used Life
Accumulated Depreciation 57,600
Divided by Annual Depreciation 7,200 8 years
Remaining life 7 years

Req. 3
During 2020
Accounts Dr Cr
Repair and Maintenance Expense 1,000
Cash 1,000

Accounts Dr Cr
Equipment 13,000
Cash 13,000
E8-17
Req. 1a
Accounts Dr Cr
Cash $ 300,000
Accumulated Depreciation - Furniture 7,700,000
Furniture $ 8,000,000

Req. 1b
Accounts Dr Cr
Cash 900,000
Accumulated Depreciation - Furniture 7,700,000
Furniture 8,000,000
Gain on Sale of Assets 600,000

Req. 1c
Accounts Dr Cr
Cash 100,000
Accumulated Depreciation - Furniture 7,700,000
Loss on Sale of Assets 200,000
Furniture 8,000,000

Req. 2 Effects of the disposal of an asset

The loss or gain on disposal of a long-lived asset is the difference between the disposal price and
(a)
the book value at date of disposal.
1. When the disposal price is the same as the book value there is no loss or gain on disposal to
be recorded.
(b) 2. When the disposal price is above book value there is a gain on disposal to be recorded.

3. When the disposal price is below book value there is a loss on disposal to be recorded.
The book value does not appear to be market value, so a loss or gain on disposal of a long-lived
(c)
asset normally would occur.