16
Accounting for Property,
1. The costs involved in acquiring the asset and getting the asset in position and condition for use in the
company.
3. Revenue expenditures relate to expenses that do not extend the plant asset’s useful life, or improve
4. Straight-line: Depreciation expense is the same amount each year. Units–of-production:
5. The Modified Accelerated Cost Recovery System is used for tax purposes. It speeds up the
depreciation schedule.
7. Double declining-balance method.
9. True.
11. It is a contra-asset that recorded the amount of depletion accumulated.
13. The question in this case is whether the dealer is being fair to Pete. It does not seem that the dealer
SOLUTIONS TO CONCEPT CHECKS
2. The annual straight-line depreciation is $900.00
4. The first year depreciation is $375.00.
6.
Situation
Capital
Expenditure
Revenue
Expenditure
Addition
a. New truck engine replaced
X
b. New furnace filters
X
c. Oil change on truck
X
d. New addition on prep school
X
X
7. Account Category Financial Statement Found
a.
Gain on Sale of Plant Assets
Other Income
Income Statement
b.
Accumulated Depletion
Contra-Asset
Balance Sheet
c.
Loss on Disposal of Plant Assets
Other Expense
Income Statement
8.
a. What is the book value of the old machine? $8,500
What is the loss? $2,500
b.
Machinery-New
18,700
Loss on Exchange of Machinery
2,500
Accumulated Depreciation, Machinery
11,100
Machinery-Old
19,600
Cash
12,700
CONCEPT CHECKS (CONTINUED)
9.
a.
What is the book value of the old machine? $8,500
What is the gain? $4,000
b.
Machinery (new)
14,700
Accumulated Depreciation, Machinery
11,100
Machinery (old)
19,600
Cash
6,200
10.
Machinery (new)
21,200
Accumulated Depreciation, Machinery
11,100
Machinery (old)
19,600
Cash
12,700
SOLUTIONS TO SET A EXERCISES
16A-1.
The actual cost of the machine is $27,578.
16A-2.
(a) Straight-Line
Year
Cost
Depreciation
Expense
Accumulated
Depreciation
End of Year
Book Value
End of Year
1
$1,470
$236
$236
$1,234
2
$1,470
$236
$472
$ 998
(b) Units-of–Production
Year
Cost
Output
Depreciation
Expense
Accumulated
Depreciation
Book Value
1
$1,470
50
$100
$100
$1,370
2
$1,470
200
$400
$500
$ 970
(c) Double Declining- Balance
Year
Cost
Accumulated
Depreciation
Beginning of
Year
Book Value
Beginning
of Year
Depreciation
Expense
Accumulated
Depreciation
End of Year
Book
Value
End of
Year
1
$1,470
$0
$1,470
$588.00
$588.00
$882.00
2
$1,470
$588.00
$ 882.00
$352.80
$940.80
$529.20
EXERCISES (CONTINUED)
16A-3.
(a)
Straight-Line
Year
Cost
Depreciation
Expense
Accumulated
Depreciation
End of Year
Book Value
End of Year
1
$6,780
$1,498
$1,498
$5,282
2
$6,780
$1,498
$2,996
$3,784
(b)
Double Declining-Balance
Accumulated
Depreciation
Book Value
Accumulated
Depreciation
Book
Value
Yr.
Cost
Beginning of
Year
Beginning
of Year
Depreciation
Expense
End of Year
End of
Year
1
$6,780
$0
$6,780
$3,390
$3,390
$3,390
2
$6,780
$3,390
$3,390
$1,695
$5,085
$1,695
16A-4.
(a)
Machinery (old)
– Accumulated depreciation
= Book value
$9,080
– $3,920
= $5,160
(b)
Book value
– Trade-in value
= Loss on Exchange
$5,160
– $835
= $4,325
(c)
Machinery (new)
5
8
5
0
00
Loss on Exchange
4
3
2
5
00
Accumulated Depreciation, Machinery
3
9
2
0
00
Machinery (old)
9
0
8
0
00
Cash
5
0
1
5
00
(d)
Machinery (new)
10
1
7
5
00
Accumulated Depreciation, Machinery
3
9
2
0
00
Machinery (old)
9
0
8
0
00
Cash
5
0
1
5
00
Book Value
+ Cash paid
= Machinery (new)
$5,160
+ $5,015
= $10,175
EXERCISES (CONTINUED)
16A-5.
2014
Dec.
31
Amortization Expense, Patents
4
0
0
00
Patents
4
0
0
00
2015
Dec.
31
Amortization Expense, Patents
6
0
0
00
Patents
6
0
0
00
16A-6.
The depreciation for year 1 is $1,840.00.
The depreciation for year 2 is $2,944.00.
The depreciation for year 3 is $1,766.40.
The depreciation for year 4 is $1,059.84.
The depreciation for year 5 is $1,059.84.
The depreciation for year 6 is $529.92.
SOLUTIONS TO SET B EXERCISES
16B–1.
The actual cost of the machine is $29,256.
16B–2.
(a) Straight-Line
Year
Cost
Depreciation
Expense
Accumulated
Depreciation
End of Year
Book Value
End of Year
1
$1,460
$240
$240
$1,220
2
$1,460
$240
$480
$980
(b) Units-of–Production
Year
Cost
Output
Depreciation
Expense
Accumulated
Depreciation
Book Value
1
$1,460
100
$190
$190
$1,270
2
$1,460
240
$456
$646
$814
(c) Double Declining- Balance
Year
Cost
Accumulated
Depreciation
Beginning of
Year
Book Value
Beginning
of Year
Depreciation
Expense
Accumulated
Depreciation
End of Year
Book
Value
End of
Year
1
$1,460
$0
$1,460
$584.00
$584.00
$876.00
2
$1,460
$584.00
$ 876.00
$350.40
$934.40
$525.60
EXERCISES (CONTINUED)
16B–3.
(a)
Straight-Line
Year
Cost
Depreciation
Expense
Accumulated
Depreciation
End of Year
Book Value
End of Year
1
$6,800
$1,490
$1,490
$5,310
2
$6,800
$1,490
$2,980
$3,820
(b)
Double Declining-Balance
Accumulated
Depreciation
Book Value
Accumulated
Depreciation
Book
Value
Yr.
Cost
Beginning of
Year
Beginning
of Year
Depreciation
Expense
End of Year
End of
Year
1
$6,800
$0
$6,800
$3,400
$3,400
$3,400
2
$6,800
$3,400
$3,400
$1,700
$5,100
$1,700
16B–4.
(a)
Machinery (old)
– Accumulated depreciation
= Book value
$9,050
– $3,940
= $5,110
(b)
Book value
– Trade-in value
= Loss on Exchange
$5,110
– $820
= $4,290
(c)
Machinery (new)
5
8
7
0
00
Loss on Exchange
4
2
9
0
00
Accumulated Depreciation, Machinery
3
9
4
0
00
Machinery (old)
9
0
5
0
00
Cash
5
0
5
0
00
Accumulated Depreciation, Machinery
3
9
4
00
Machinery
9
0
5
0
00
Cash
5
0
5
0
00
EXERCISES (CONTINUED)
16B–5.
2014
Dec.
31
Amortization Expense, Patents
6
8
0
00
Patents
6
8
0
00
2015
Dec.
31
Amortization Expense, Patents
1
0
2
0
00
Patents
1
0
2
0
00
16B–6.
The depreciation for year 1 is $1,820.00.
The depreciation for year 2 is $2,912.00.
The depreciation for year 3 is $1,747.20.
The depreciation for year 4 is $1,048.32.
The depreciation for year 5 is $1,048.32.
The depreciation for year 6 is $524.16.
Copyright © 2016 Pearson Education, Inc.
16–10
SOLUTIONS TO SET A PROBLEMS
PROBLEM 16A-1
ORANGE COMPANY
GENERAL JOURNAL
PAGE 4
Date
201X
Account Titles and Description
PR
Dr.
Cr.
Feb.
5
Land
92
0
0
0
00
Cash
92
0
0
0
00
18
Land Improvements
5
3
0
0
00
Cash
5
3
0
0
00
Mar.
24
Building
86
0
0
0
00
Cash
22
3
6
0
00
Mortgage Payable
63
6
4
0
00
29
Equipment
40
4
0
0
00
Cash
40
4
0
0
00
May
10
Building
175
0
0
0
00
Cash
175
0
0
0
00
Jun.
15
Repairs Expense
8
5
0
00
Cash
8
5
0
00
Jul.
1
Truck
13
5
0
0
00
Cash
13
5
0
0
00
Oct.
15
Truck
2
5
0
0
00
Cash
2
5
0
0
00
Nov
30
Repairs Expense
3
6
00
Cash
3
6
00
Dec.
30
Accumulated Depreciation, Truck
8
0
0
00
Cash
8
0
0
00
31
Repairs Expense
3
0
0
00
Cash
3
0
0
00