Question

Parry Incorporated recorded the following asset disposals during the year:
a. A computer system with an original cost of $ 23,800, 80% depreciated, was judged obso-lete during the period and scrapped.
b. Automotive equipment, a large truck with an original cost of $ 50,800, 50% depreciated, was exchanged for a smaller truck. The smaller truck had a fair value of $ 25,000. The smaller truck will be used for the same general functions, but it is hoped that it will be more efficient and cost less money in gas. The larger used truck had a fair value of $ 23,000, and Parry paid $ 2,000 in the exchange.
c. Parry sold machinery with an original cost of $ 60,000 for $ 45,000 cash at the end of the year. It had held the machinery for three years. Originally, Parry had planned to hold the machinery for eight years, and charged straight- line depreciation, with an estimate of a $ 10,000 salvage value. At the beginning of the second year, Parry had spent $ 3,000 on routine maintenance of this machine, and another $ 5,000 to build a special base for it in the plant that improved its efficiency. The base is now worthless.
d. A trademark, with an amortized cost of $ 12,000, representing primarily unamortized legal fees, was sold for $ 75,500 cash.
e. Parry sold a piece of land with an original cost of $ 180,000 during the period. It accepted 20,000 common shares of the purchasing company, $ 30,000 in cash, and a five- year non- interest- bearing note that requires end- of- year payments of $ 50,000 per year for five years. The market interest rate is 7%. The purchaser’s shares are widely traded in the stock market, and they have had a market value of about $ 2 per share in the last 12 months but have ranged from $ 1.10 to $ 5 in a volatile market. The land has been appraised a number of times over the years, with values ranging from $ 220,000 to $ 310,000.

Required:
1. Provide journal entries to record the disposal transactions listed above. Record the note receivable in (e) using the net method.
2. What would appear in the investing activities section of the SCF as a result of each of these transactions?



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  • CreatedFebruary 17, 2015
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