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Each share of common or preferred capital stock either has a par value or lacks one. The corporation’s charter determines the par value printed on the stock certificates issued. Par value may be any amount—1 cent, 10 cents, 16 cents, $ 1, $5, or $100. Low par values of $10 or less are common in our economy. A note receivable earns interest revenue for the holder. This revenue is recorded by making the following journal entry: When the face value and interest thereon is collected, the following entry is made: Example: On October 1, 2014, the Western company received a 120 day, 5% note from Southern company in the settlement of an account of $45,000. The $2,400 payment was recorded on December 1 with a debit to the income statement account Insurance Expense and a credit to the current asset Cash. Your company prepares monthly financial statements at the end of each calendar month. The following questions pertain to the adjusting entry that should be written by the company.
Disposal of plant assets
All plant assets except land eventually wear out or become inadequate or obsolete and must be sold, retired, or traded for new assets. When disposing of a plant asset, a company must remove both the asset’s cost and accumulated depreciation from the accounts. Overall, then, all plant asset disposals have the following steps in common:
•Bring the asset’s depreciation up to date.
•Record the disposal by:
•Writing off the asset’s cost.
•Writing off the accumulated depreciation.
•Recording any consideration (usually cash) received or paid or to be received or paid.
•Recording the gain or loss, if any.
As you study this section, remember these common procedures accountants use to record the disposal of plant assets. In the paragraphs that follow, we discuss accounting for the (1) sale of plant assets, (2) retirement of plant assets without sale (write it off) , and (3) trading plant assets. Watch this video to demonstrate the first 2:
Sale of plant assets
Companies frequently dispose of plant assets by selling them. By comparing an asset’s book value (cost less accumulated depreciation) with its selling price (or net amount realized if there are selling expenses), the company may show either a gain or loss. If the sales price is greater than the asset’s book value, the company shows a gain. If the sales price is less than the asset’s book value, the company shows a loss. Of course, when the sales price equals the asset’s book value, no gain or loss occurs.
Datebook 1 0 6 – Journal Entry Template
To illustrate accounting for the sale of a plant asset, assume that a company sells equipment costing $45,000 with accumulated depreciation of $ 14,000 for $28,000 cash. The company would realizes a loss of $ 3,000 ($45,000 cost – $14,000 accumulated depreciation is $31,000 book value— $28,000 sales price). The journal entry to record the sale is:
Cash | Debit 28,000 | Credit |
Accumulated Depreciation—Equipment | 14,000 | |
Loss from Disposal of Plant Asset | 3,000 | |
Equipment | 45,000 | |
To record the sale of equipment at a price less than | ||
book value. |
Accounting for depreciation to date of disposal When selling or otherwise disposing of a plant asset, a firm must record the depreciation up to the date of sale or disposal. For example, if it sold an asset on April 1 and last recorded depreciation on December 31, the company should record depreciation for three months (January 1-April 1). When depreciation is not recorded for the three months, operating expenses for that period are understated, and the gain on the sale of the asset is understated or the loss overstated.
To illustrate, assume that on 2016 August 1, Ray Company sold a machine for $1,500. When purchased on 2008 January 2, the machine cost $12,000; Ray was depreciating it at the straight-line rate of 10% per year. As of 2015 December 31, after closing entries were made, the machine’s accumulated depreciation account had a balance of $ 9,600. Before determining a gain or loss and before making an entry to record the sale, the firm must make the following entry to record depreciation for the seven months ended 2016 July 31:
July | 31 | Depreciation Expense—Machinery | Debit 700 | Credit |
Accumulated Depreciation—Machinery | 700 | |||
To record depreciation for seven months | ||||
[$12,000 X 0.10 X (7/12)] |
When retiring a plant asset from service, a company removes the asset’s cost and accumulated depreciation from its plant asset accounts. For example, Hayes Company would make the following journal entry when it retired a fully depreciated machine that cost $15,000 and had no salvage value:
Accumulated Depreciation—Machinery | Debit 15,000 | Credit |
Machinery | 15,000 | |
To record the retirement of a fully depreciated machine. |
Occasionally, a company continues to use a plant asset after it has been fully depreciated. In such a case, the firm should not remove the asset’s cost and accumulated depreciation from the accounts until the asset is sold, traded, or retired from service. Of course, the company cannot record more depreciation on a fully depreciated asset because total depreciation expense taken on an asset may not exceed its cost.
Sometimes a business retires or discards a plant asset before fully depreciating it. When selling the asset as scrap (even if not immediately), the firm removes its cost and accumulated depreciation from the asset and accumulated depreciation accounts. In addition, the accountant records its estimated salvage value in a Salvaged Materials account and recognizes a gain or loss on disposal. To illustrate, assume that a firm retires a machine with a $10,000 original cost and $7,500 of accumulated depreciation. If the machine’s estimated salvage value is $500, the following entry is required:
Salvaged materials | Debit 500 | Credit |
Accumulated Depreciation—Machinery | 7,500 | |
Loss from Disposal of Plant Assets | 2,000 | |
Machinery | 10,000 | |
To record the retirement of machinery, which will be | ||
sold for scrap at a later time. |
Sometimes accidents, fires, floods, and storms wreck or destroy plant assets, causing companies to incur losses. For example, assume that fire completely destroyed an uninsured building costing $40,000 with up-to-date accumulated depreciation of $12,000. The journal entry is:
Loss from Fire | Debit 28,000 | Credit |
Accumulated Depreciation—Buildings | 12,000 | |
Buildings | 40,000 | |
To record fire loss. |
If the building was insured, the company would debit only the amount of the fire loss exceeding the amount to be recovered from the insurance company to the Fire Loss account. Syncmate expert 7 4 452 download free. To illustrate, assume the company partially insured the building and received $22,000 from the insurance company. The journal entry is:
Datebook 1 0 6 – Journal Entry Prompts
Cash | Debit 22,000 | Credit |
Loss from Fire | 6,000 | |
Accumulated Depreciation—Buildings | 12,000 | |
Buildings | 40,000 | |
To record fire loss and amount recoverable from | ||
insurance company. |
Journal entries are a key component as well as the first step in the accounting cycle. Each business transaction is analyzed for the economic impact on the asset, liability, and equity accounts before being recorded in the accounting system with a journal entry. Since every single business transaction is recorded or journalized throughout the year, there are tons of different journal entries. Most journal entries are recorded in general journal, but specific journal entries like credit sales of inventory are recorded in separate journals like the sales journal.
Datebook 1 0 6 – Journal Entry Example
I know how difficult it can be to memorize how each business transaction is recorded. That’s why I’ve made this extensive list of journal entry examples. Each example deals with a common business transaction, so you can use this as a reference for how to journalize transactions in the future.
Examples
Datebook 1 0 6 – Journal Entry Journal
I also show you how to record the journal entry as well as explain the economic impact of each transaction on the accounting equation. Most of these journal entry examples are also in parts of the accounting course. Check out this list of journal entries. If you don’t see what you are looking for, use the search bar on the right to find an example.