Version 03

Question 1

Assume that a company bought a coffee roaster for $15,000 cash. They expect to use it for five years. At the end of the first year they recorded depreciation for one year. During the first week of the second year they sold the coffee roaster because they no longer needed it and received $10,000 cash.

A. Describe in words the effect on the accounting equation of each of the following:

i. Acquisition of the coffee roaster
ii. Depreciation at the end of the first year
iii. Sale of the coffee roaster

B. Record the journal entries for the following:

i. Acquisition of the coffee roaster
ii. Depreciation at the end of the first year
iii. Sale of the coffee roaster

Answer 1

A.
The acquisition reduces cash by $15,000 and increases an asset, “Coffee Roaster,” by $15,000.

Depreciating the coffee roaster increases the coffee roaster contra asset account, “Accumulated Depreciation—Coffee Roaster,” thereby reducing the net asset “Coffee Roaster” by $3,000. “Depreciation expense” is recorded for $3,000.

Selling the coffee roaster removes the Coffee Roaster account ($15,000) and the Accumulated Depreciation—Coffee Roaster account ($3,000) from the books (net decrease of $12,000) and increases cash by $10,000. The difference of $2,000 ($12,000 net book value of Coffee Roaster – $10,000 cash received for Coffee Roster) is recorded as a loss.

B.
DR Coffee Roaster (A) 15,000
CR Cash (A) 15,000

DR Depreciation Expense (E) 3,000
CR Accumulated Depreciation - Coffee Roaster (XA) 3,000

DR Cash (A) 10,000
DR Accumulated Depreciation - Coffee Roaster (XA) 3,000
DR Loss on Sale of Coffee Roaster (Lo) 2,000
CR Coffee Roaster (A) 15,000

Question 2

Assume that in 2019 Starbucks sold its corporate headquarters office building in Seattle for $50 million. They originally paid $20 million for the building many years ago, and its net book value at the time of the sale is $5 million. Provide the journal entry to record this sale using conventional account titles (i.e. you are not restricted to using their financial statement line items as account titles).

Answer 2

DR Cash (A) 50,000,000
DR Accumulated Depreciation - Building (XA) 15,000,000
CR Building (A) 20,000,000
CR Gain on Sale of Building (G) 45,000,000

Question 3

Change (delta) in Permanent Owners’ Equity equation

Answer 3

Revenue - Expense + Gains - Losses

Question 4

All journal entries are posted to….

Answer 4

the general ledger, which is represented by a separate T-account for each account