Question

1. Sheffield Corp. purchased a taxicab on January 1, 2016 for $56000 to use for its shuttle business. The cab is expected to have a five-year useful life and no salvage value. During 2017, it retouched the cab's paint at a cost of $1200, replaced the transmission for $5000 (which extended its life by an additional 2 years), and tuned-up the engine for $300. If Sheffield Corp. uses straight-line depreciation, what annual depreciation will Sheffield report for 2017?

$11200.

$8300.

$9033.

$8550.

In 2014, Flounder Corp. has plant equipment that originally cost $145000 and has accumulated depreciation of $40000. A new processing technique has rendered the equipment obsolete, so it is retired. Which of the following entries should Flounder use to record the retirement of the equipment?

Loss on Disposal of Plant Assets		105000
	Equipment		105000
Accumulated Depreciation - Equipment		40000
Loss on Disposal of Plant Assets		105000
	Equipment		145000

Loss on Disposal of Plant Assets		105000
	Accumulated Depreciation - Equipment		105000
Plant Equipment		145000
	Accumulated Depreciation - Equipment		40000
	Loss on Disposal of Plant Assets		105000

3. A company sells a plant asset that originally cost $575000 for $240000 on December 31, 2017. The accumulated depreciation account had a balance of $230000 after the current year's depreciation of $57500 had been recorded. The company should recognize a

$105000 gain on disposal.

$105000 loss on disposal.

$335000 loss on disposal.

$47500 loss on disposal.

Answer 1

Solution:

a.

Option B ($8,300) is the correct answer.

Explanation:

Depreciation = (Cost - Salvage Value) / Useful Life = $56,000/5 = $11,200

Annual Depreciation for 2017 = (Cost - Depreciation) + Replacement Cost / Five Years - One Year Completed + 2 More Years

= [($56,000 - $11,200) + $5,000] ÷ (5 - 1 + 2) = $8,300

b.

Account And Explanation	Debit ($)	Credit ($)
Accumulated Depreciation - Equipment	40000
Loss on Disposal of Plant Assets	105000
Equipment		145000
(Being Retirement of Equipment Recorded)

c.

96,000 loss on disposal

Explanation:

Data Provided:

The cost of plant assets = $575,000

Selling value of the plant assets = $240,000

Accumulated Depreciation = $230,000

Therefore, the net book value of the plant assets = Total cost of the plant - Depreciation

The net book value of the plant assets = $575,000 - $230,000 = $345,000

Since, the net book value is more than the selling price

Therefore, the loss on disposal = Book value - selling cost

= $345,000 - $240,000 = $105,000

Hence, Option B is the correct answer i.e $105,000 Loss On Disposal