Question

Problem 2
J & J is considering replacing some of their older computers. Give the potential entries given the following scenarios. Assume all scenarios are independent (B is not independent from A) and have commercial substance.

a. Fourteen new computers - $140,000, additional $2,000 for freight and 6% tax on $140,000. Estimated useful life is 5 years with 5% salvage value. They are treated as a single unit for financial reporting purposes. No trade-ins.
b. Ten existing computers will be traded in (total trade-in value $10,000) for the new computers. The computers are treated as a single unit with an original cost of $80,000 and book value of $8,000. The remainder was paid in cash. They are treated as a single unit for financial reporting purposes

c. Ten existing computers will be traded in (total trade-in value $20,000) for the new computers. The computers are treated as a single unit with an original cost of $80,000 and book value of $20,000. The remainder was paid in cash. They are treated as a single unit for financial reporting purposes

Required:
Prepare the potential journal entries for the above events.

Part B is not independent from A. Please show all calculations. Thanks

Answer 1

a. Fourteen new computers - $140,000, additional $2,000 for freight and 6% tax on $140,000. Estimated useful life is 5 years with 5% salvage value. They are treated as a single unit for financial reporting purposes. No trade-ins.
Date	General Journal			Debit	Credit
a.	Computers			$1,50,400
	Cash / Accounts payable				$1,50,400
b. Ten existing computers will be traded in (total trade-in value $10,000) for the new computers. The computers are treated as a single unit with an original cost of $80,000 and book value of $8,000. The remainder was paid in cash. They are treated as a single unit for financial reporting purposes
Date	General Journal			Debit	Credit
b.	Computers (new)			$1,50,400
	Accumulated Depreciation (old)			$72,000
	Gain on exchange				$2,000
	Cash				$1,40,400
	Computers (Old)				$80,000
c. Ten existing computers will be traded in (total trade-in value $20,000) for the new computers. The computers are treated as a single unit with an original cost of $80,000 and book value of $20,000. The remainder was paid in cash. They are treated as a single unit for financial reporting purposes
Date	General Journal			Debit	Credit
c.	Computers (new)			$1,50,400
	Accumulated Depreciation (old)			$60,000
	Cash				$1,30,400
	Computers (Old)				$80,000