Chapter 09 – Long-Term Assets: Fixed and Intangible
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Page 71
LEARNING OBJECTIVES:
FNMN.WAJO.19.09–02 – LO: 09–02
ACCREDITING STANDARDS:
ACCT.ACBSP.APC.13 – Long-term Assets Reporting
ACCT.AICPA.FN.03 – Measurement
BUSPROG: Analytic
DATE CREATED:
7/22/2017 6:24 PM
DATE MODIFIED:
10/16/2017 5:33 PM
197. On July 1, Hartford Construction purchases a bulldozer for $228,000. The equipment has a 9-year life with a residual
value of $16,000. Hartford uses the units-of-output method of depreciation, and the bulldozer is expected to yield 26,500
operating hours.
(a) Calculate the depreciation expense per hour of operation.
(b) The bulldozer is operated 1,250 hours in the first year, 2,755 hours in the second year, and 1,225 hours in the
third year of operations. Journalize the depreciation expense for each year.
ANSWER:
(a) Hourly depreciation is:
Acquisition cost
$228,000
Less residual value
16,000
Depreciable cost
$212,000
Service life in hours
÷ 26,500
Hourly depreciation
$ 8
(b) First year: 1,250 hours × $8 per hour = $10,000
Year 1
10,000
10,000
Second year: 2,755 hours × $8 per hour = $22,040
Year 2
22,040
22,040
Third year: 1,225 hours × $8 per hour = $ 9,800
Year 3
Depreciation Expense
9,800
Accumulated
POINTS:
1
DIFFICULTY:
Challenging
Moderate
Bloom’s: Applying
QUESTION TYPE:
Subjective Short Answer
HAS VARIABLES:
False
LEARNING OBJECTIVES:
FNMN.WAJO.19.09–02 – LO: 09–02
ACCREDITING STANDARDS:
ACCT.ACBSP.APC.13 – Long-term Assets Reporting
ACCT.AICPA.FN.03 – Measurement
BUSPROG: Analytic
DATE CREATED:
7/22/2017 6:24 PM
DATE MODIFIED:
10/16/2017 5:33 PM
198. Eagle Country Club has acquired a lot to construct a clubhouse. Eagle had the following costs related to the
Chapter 09 – Long-Term Assets: Fixed and Intangible
construction:
Architects’ fees
$ 45,000
Construction labor
80,000
Engineers’ fees
15,000
Fences around building
9,000
Grading and leveling
10,000
Insurance costs incurred during construction
7,000
Interest on money borrowed for construction
5,000
Land
73,000
Building Materials
237,000
Sales taxes
6,000
Trees and shrubs
6,000
Determine the cost of the club house to be reported on the balance sheet.
ANSWER:
Architects’ fees
$ 45,000
Construction labor
80,000
Engineers’ fees
15,000
Insurance costs incurred during construction
7,000
Interest on money borrowed for construction
5,000
Building materials
237,000
Sales taxes
6,000
Cost of club house
$395,000
POINTS:
1
DIFFICULTY:
Bloom’s: Applying
Moderate
QUESTION TYPE:
Subjective Short Answer
HAS VARIABLES:
False
LEARNING OBJECTIVES:
FNMN.WAJO.19.09–01 – LO: 09–01
ACCREDITING STANDARDS:
ACCT.ACBSP.APC.13 – Long-term Assets Reporting
ACCT.AICPA.FN.03 – Measurement
BUSPROG: Analytic
DATE CREATED:
7/22/2017 6:24 PM
DATE MODIFIED:
10/16/2017 5:33 PM
199. Equipment was purchased on January 5, year 1, at a cost of $90,000. The equipment had an estimated useful life of 8
years and an estimated residual value of $8,000.
After using the equipment for 3 years, the useful life was revised to a total of 10 years and the residual value was reduced
to $2,004.
Determine the straight-line depreciation expense for the Year 4 and following years.
ANSWER:
Book value at beginning of Year 4:
Cost $90,000
Residual 8,000
Depreciable cost $82,000
Chapter 09 – Long-Term Assets: Fixed and Intangible
Copyright Cengage Learning. Powered by Cognero.
Page 80
(a)
Compute the book value of the fixed assets for the current year and the preceding year
and explain the differences, if any.
(b)
Would you normally expect the book value of fixed assets to increase or decrease during
the year?
ANSWER:
(a)
Property, plant, and equipment (in millions):
Current
Preceding
Year
Year
Land and buildings
$ 726
$ 361
Machinery, equipment, and internal-use software
595
470
Office furniture and equipment
94
81
Other fixed assets related to leases
760
569
$2,175
$1,481
Less accumulated depreciation
894
644
Book value
$1,281
$ 837
A comparison of the book values of the current and preceding years
indicates that they increased. A comparison of the total cost and
accumulated depreciation reveals that Harrison purchased $694 million
($2,175 – $1,481) of additional fixed assets, which was offset by the
additional depreciation expense of $250 million ($894 – $644) taken
during the current year.
(b)
The book value of fixed assets should normally increase during the year.
Although additional depreciation expense will reduce the book value,
most companies invest in new assets in an amount that is at least equal to
the depreciation expense. However, during periods of economic
downturn, companies purchase fewer fixed assets, and the book value of
their fixed assets may decline.
POINTS:
1
DIFFICULTY:
Challenging
Bloom’s: Applying
QUESTION TYPE:
Subjective Short Answer
HAS VARIABLES:
False
LEARNING OBJECTIVES:
FNMN.WAJO.19.09–06 – LO: 09–06
ACCREDITING STANDARDS:
ACCT.ACBSP.APC.13 – Long-term Assets Reporting
ACCT.AICPA.FN.03 – Measurement
BUSPROG: Analytic
DATE CREATED:
7/22/2017 6:24 PM
DATE MODIFIED:
10/16/2017 5:33 PM
213. Fill in the missing numbers using the formula for fixed asset turnover:
Company A
Company B
Company C
Company D
Sales
$5,000,000
$720,000
$900,000
?
Beginning fixed assets
$450,000
$275,000
?
$380,000
Ending fixed assets
$800,000
?
$310,000
$420,000
Fixed asset turnover
?
2.4 times
3 times
2.6 times
ANSWER: