Conservative Company purchased a warehouse on January 1, 2015, for $400,000. At the time of purchase, Conservative
Question:
Conservative Company purchased a warehouse on January 1, 2015, for $400,000. At the time of purchase, Conservative anticipated that the warehouse would be used to facilitate the expansion of its product lines. The warehouse is being depreciated over 20 years and is expected to have a residual value of $50,000. At the beginning of 2020, the company decided that the warehouse would no longer be used and should be sold for its carrying amount. At the end of 2020, the warehouse still had not been sold, and its net realizable value was estimated to be only $260,000.
Required
a. Calculate the carrying amount of the warehouse on January 1, 2020.
b. Prepare all the journal entries that Conservative should make during 2020 related to the warehouse.
c. If Conservative sells the warehouse in 2021 for $220,000, what entry would be made for the sale?
d. During 2020, the financial vice-president expressed concern that, if Conservative put the building up for sale, the company might have to report a loss, and he did not want to reduce 2020 earnings. He wanted to continue treating the warehouse as an operating asset. How would the 2020 and 2021 financial statements be different if the warehouse were still treated as an operating asset during 2020? From a shareholder’s perspective, do you think the treatment makes any difference? Explain.
Financial StatementsFinancial statements are the standardized formats to present the financial information related to a business or an organization for its users. Financial statements contain the historical information as well as current period’s financial...
Step by Step Answer:
Understanding Financial Accounting
ISBN: 9781119406921
2nd Canadian Edition
Authors: Christopher D. Burnley