2014 FASB Update Intermediate Accounting (15th Edition) Edit editionThis problem has been solved:Solutions for Chapter 10
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Capitalization of Interest:
Interest amount, which was accrued during the construction period of the building, will get capitalized and added to the cost of the building.
Capitalization of interest:
Compute the gain on sale of fixed asset.
| Particulars | Amounts in $ |
| Fair value of the machine given up | 50,000 |
| Less: book value of the asset | 32,000 |
| Gain | 18,000 |
Therefore, the gain on sale of asset is $18,000.
The following journal entry would be passed:
| Date | Account and Description | Ref. | Debit | Credit |
| Amounts in $ | ||||
| New Machinery | 62,000 | |||
| Accumulated depreciation | 80,000 | |||
| To Old Machinery | 112,000 | |||
| To Cash | 12,000 | |||
| To Gain on disposal | 18,000 |
New Machinery is an asset and it is increased by $62,000. Thus, the new machinery is debited with $62,000.
Accumulated depreciation is a liability and it is increased by $80,000. Thus, the Accumulated depreciation is debited with $80,000.
Old Machinery is an asset and it increased by $112,000. Thus, the Old Machinery is credited with $112,000.
Cash is an asset and it is decreased by $12,000. Thus, the cash is credited with $12,000.
Gain on disposal is an income and it is increased by $18,000. Thus, the gain on disposal is credited with $18,000.
Analysis:
While calculating the return on the asset, the book value of the old machinery would be subtracted and the fair value of the new machinery would be added.
Principles:
In case, the transaction would have lacked the commercial substance, then the amount of machinery in the journal entry would have increased by $12,000 because no cash would have been paid.
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