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Problem 4: Chapter 5 - Dayag - Solution Manual

Frazer sold a truck that he had purchased for $300,000 three years ago. He recorded a gain on sale of $35,000. However, the accumulated depreciation was understated by $85,000 based on depreciating the truck over its full 10-year life. The next year, depreciation expense of $5,000 was recorded, but accumulated depreciation was understated by $80,000 when calculated over the full life of the asset.

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328 views1 page

Problem 4: Chapter 5 - Dayag - Solution Manual

Frazer sold a truck that he had purchased for $300,000 three years ago. He recorded a gain on sale of $35,000. However, the accumulated depreciation was understated by $85,000 based on depreciating the truck over its full 10-year life. The next year, depreciation expense of $5,000 was recorded, but accumulated depreciation was understated by $80,000 when calculated over the full life of the asset.

Uploaded by

Mazikeen Decker
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Problem 4

1. Eliminating entry, December 31, 20x8:


E(1) Truck 55,000 
Gain on Sale of Truck 35,000 
Depreciation Expense 5,000
Accumulated Depreciation 85,000

Computation of gain on sale of truck:


Price paid by Minnow P245,000 
Cost of truck to Frazer P300,000
Accumulated depreciation
(P300,000 / 10 years) x 3 years ( 90,000) (210,000)
Gain on sale of truck P 35,000 

Accumulated depreciation adjustment:


Required [(P300,000 / 10 years) x 4 years] P120,000 
Reported [(P245,000 / 7 years) x 1 year]   (35,000)
Required increase P  85,000 

2. Eliminating entry, December 31, 20x9:

E(1) Truck 55,000 


Retained Earnings 30,000 
Depreciation Expense 5,000
Accumulated Depreciation 80,000

Accumulated depreciation adjustment:


Required [(P300,000 / 10 years) x 5 years] P150,000 
Reported [(P245,000 / 7 years) x 2 years]   (70,000)
Required increase P  80,000 

CHAPTER 5 – DAYAG – SOLUTION MANUAL

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