Page 81 - Account for Ag - 2019

CH 12] Accounting for Fixed Assets & Depreciation 12-19

Illustration 12-7 Continued

FIXED ASSET RECORD

ITEM Harvest Equipment GENERAL LEDGER ACCOUNT Machinery & Equipment
SERIAL NO. 76291 DESCRIPTION 4 Row
FROM WHOM PURCHASED Tipton Farm Supply
ESTIMATE LIFE 12 years ESTIMATED SCRAP OR TRADE-IN VALUE $ 965.00 DEPRECIATION PER YEAR $1528.00

DATE ASSET DEPRECIATION ALLOWANCE BOOK
MO. DAY YR. EXPLANATION DR. CR. BAL DR. CR. BAL VALUE

8 13 xx 19300.00 19300.00 19300.00
12 31 xx 637.00 637.00 18863.00
12 31 x1 1528.00 2165.00 17135.00

12
When an asset is sold, traded in, or junked, the debit to the allowance account and the credit to the asset
account are also entered in the appropriate subsidiary account, reducing both balances to zero. The subsidiary
account is then removed from the ledger and is filed for possible future reference.

The balance of the controlling accounts may be proved against the subsidiary ledgers by the same process
used in earlier chapters. On December 31, 20x2, the account Machinery & Equipment has a debit balance of
$49,375.00 and the related allowance for depreciation account has a credit balance of $7,575.00. The following
summery, taken from the accounts in the subsidiary ledger, indicates that the controlling account and the
subsidiary ledger are in agreement.

Accumulated
Asset Cost Depreciation Book Value
Tractor .............................. $15,000.00 $3,000.00 $12,000.00
Utility Vehicle .................... 12,000.00 2,160.00 9,840.00
Tillage Equipment ........... 3,075.00 250.00 2,825.00
Harvest Equipment ........... 19,300.00 2,165.00 17,135.00
$49,375.00 $7575.00 $41,800.00

QUESTIONS
1. (a) Is the book value of the fixed assets shown on the balance sheet the same as the estimated price at which the assets could be sold?
(b) To what account should the cost of repairing and painting a newly acquired used truck be charged?

2. A Pickup truck purchased on January 17 is sold on December 14 of the same year. How many months' depreciation should be charged for
the year?

3. Discuss the meaning of the following terms as they are used in accounting: (a) depreciation; (b) inadequacy; (c) obsolescence; (d)
depletion.

4. In order to increase the size of its customer parking area, the Newell's Feed & Grain buys an adjoining lot and an old building for
$170,000. The net expense incurred in razing the building and leveling the land, after deducting the amounts received from the sale of
salvaged building materials, is $46,000. To what account should the $46,000 be charged?

5. Does the recognition of depreciation in the accounts provide for the replacement of fixed assets or for the distribution of the cost of the
fixed assets over the period of use, or both? Discuss.

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