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J & J is considering replacing some of their older computers. Give the potential entries given the following scenarios. Assume all scenarios are independent and have no 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.
Problem 2 Repeat each of the above requirements assuming commercial substance.
Expert Answer
1. At time of purchase
a. Computers acc (dr) 150400
TO bank acc. 150400
(being computer purchased of 140000+6% tax + freight 2000)
at the end of year deprication will be provided
b. deprication acc.(dr) 28576
To computers acc. 28576
(being deprication on computer is provided after deduction of salvage value 5% and divide ramaing by 5)
2. At time of purchase
a.. Computers acc (dr) 150400
To computers acc 10000
TO bank acc. 140400
(being computer purchased of 140000+6% tax + freight 2000)
at the end of year deprication will be provided and payment is done by traded old computer @ 10000 and remaing in cash)
b. computer acc (Dr.) 2000
To P&L ac. 2000
(being computer book value 8000 ahs been traded for 10000. excess 2000 is transfered to P&L account)
At the end of year deprication will be provided
c. deprication acc.(dr) 28576
To computers acc. 28576
(being deprication on computer is provided after deduction of salvage value 5% and divide ramaing by 5)
3. At time of purchase
a.. Computers acc (dr) 150400
To computers acc 20000
TO bank acc. 130400
(being computer purchased of 140000+6% tax + freight 2000)
at the end of year deprication will be provided and payment is done by traded old computer @ 20000 and remaing in cash)
At the end of year deprication will be provided
c. deprication acc.(dr) 28576
To computers acc. 28576
(being deprication on computer is provided after deduction of salvage value 5% and divide ramaing by 5)
