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147. Explain how to calculate total asset turnover. Describe what it reveals about a company's
financial condition, whether a higher or lower ratio is desirable, and how it is best applied for
comparative purposes.
148. How is the cost principle applied to plant assets, acquisitions, including lump-sum
purchases?
149. Explain (in detail) how to compute each of the following depreciation methods: straight-
line, units-of-production, and double-declining-balance.
150. Explain the difference between revenue expenditures and capital expenditures and how
they are recorded in the accounting system.
10-67
151. What are the general accounting procedures for recording asset disposals?
152. Describe the accounting for natural resources, including their acquisition, cost allocation,
and account titles.
153. Describe the accounting for intangible assets, including their acquisition, cost allocation,
and accounts involved.
154. The founders of BizChair.com understand that managing plant assets is important to their
company's success. What are some of the plant asset issues that the founders identify as
important to them?
Problems
155. A company's property records revealed the following information about its plant assets:
Calculate the depreciation expense for each machine for the year ended December 31 for Year
1, and for the year ended December 31 for Year 2.
Machine 1:
Year 1______________________ Year 2 _______________________
Machine 2:
Year 1 ______________________ Year 2 _______________________
Machine
Salvage
Purchase
Depreciation Method
No.
Cost
Value
Date
and Estimated Life
1
$42,000
$3,000
10/01
Straight-line (3 years)
2
86,000
8,600
7/01
Double-declining-
balance (5 years)
156. A company purchased a truck on October 1 of the current year at a cost of $40,000. The
truck is expected to last six years and has a salvage value of $2,200. The company's annual
accounting period ends on December 31.
1. What is the depreciation expense for the current year, assuming the straight-line method is
used?
2. What is the depreciation expense for the current year, assuming the double-declining-
balance method is used?
157. A machine was purchased for $37,000 and depreciated for five years on a straight-line
basis under the assumption it would have a ten-year life and a $1,000 salvage value. At the
beginning of the machine's sixth year it was recognized the machine had three years of
remaining life instead of five and that at the end of the remaining three years its salvage value
would be $1,600. What amount of depreciation should be recorded in each of the machine's
remaining three years?
158. A company purchased a machine for $75,000 that was expected to last 6 years and to
have a salvage value of $6,000. At the beginning of the machine's fourth year the company
decided that the estimated useful life should be revised to a total of 10 years instead of 6
years. Also, the salvage value was re-estimated to be $5,500. Straight-line depreciation was
used throughout the machine's life. Calculate the depreciation expense for the fourth year of
the machine's useful life.
159. On July 1 of the current year, a company purchased and placed in service a machine with
a cost of $240,000. The company estimated the machine's useful life to be four years or
60,000 units of output with an estimated salvage value of $60,000. During the current year,
15,000 units were produced.
Prepare the necessary December 31 adjusting journal entry to record depreciation for the
current year assuming the company uses:
a. The straight-line method of depreciation
b. The units-of-production method of depreciation
c. The double-declining balance method of depreciation
160. On September 30 of the current year, a company acquired and placed in service a
machine at a cost of $700,000. It has been estimated that the machine has a service life of
five years and a salvage value of $40,000. Using the double-declining-balance method of
depreciation, prepare a schedule showing depreciation amounts for the current year and the
next 4 years (round answers to the nearest dollar). The company closes its books on
December 31 of each year.
161. On April 1, Year 1, SAS Corp. purchased and placed in service a plant asset. The
following information is available regarding the plant asset:
Acquisition cost ......................................................
$130,000
Estimated salvage value ..........................................
$15,000
Estimated useful life ...............................................
5 years
Make the necessary adjusting journal entries at December 31, Year 1, and December 31, Year
2 to record depreciation for each year under the following depreciation methods:
a. Straight-line.
b. Double-declining-balance.
162. On January 1, Year 1, Acadia purchased a computer system that cost $1,480,000. The
estimated useful life of the computer is 3 years and salvage value is $40,000. Straight-line
depreciation is to be used. On January 1, Year 2, the company determined that the estimated
useful life of the computer would be 4 years instead of 3 years. The estimated salvage value
will only be $10,000.
Prepare the journal entry to record depreciation expense for Year 1.
Prepare the journal entry to record depreciation expense for Year 2.
163. The Weiss Company purchased a truck for $95,000 on January 2. The truck was
estimated to have a $3,000 salvage value and a 4 year life. The truck was depreciated using
the straight-line method. At the beginning of the third year, it was obvious that the truck's
total useful life would be 6 years rather than 4, and the salvage at the end of the 6th year
would be $1,500. Determine the depreciation expense for the truck for the 6 years of its life.
Year
Depreciation expense
1
2
3
4
5
6
164. Mahoney Company had the following transactions involving plant assets during Year 1
and Year 2. Unless otherwise indicated, all transactions were for cash.
Prepare the general journal entries to record these transactions.
Year1
Jan. 2
Purchased a truck for $50,000 plus sales taxes of $3,000.
The truck is expected to have a $4,000 salvage value and a 4 year life.
Jan. 3
Paid $1,500 to have the company’s logo painted on the truck. This did not change the
truck’s salvage value.
Dec.31
Recorded straight-line depreciation on the truck.
Year 2
Jan. 5
Paid $5,000 to put a bigger engine in the truck. This new engine is expected to make
the truck run more efficiently, and will increase the truck’s useful life by one year. The
salvage value remained at $4,000.
Mar. 1
Paid $2,000 to replace a broken tailgate. The tailgate was damaged when a heavy
carton was inadvertently dropped on it.
Dec. 31
Recorded straight-line depreciation on the truck.
165. A company purchased a heating system on January 2 for $225,000. The system had an
estimated useful life of 15 years. On January 3 of the thirteenth year, the company completed
a renovation of the system at a cost of $33,000 and now expects the system to be more
efficient and last 8 years beyond the original estimate. The company uses the straight-line
method of depreciation.
(a) Prepare the journal entry at January 3, to record the renovation of the heating system.
(b) Prepare the journal entry at December 31, to record the revised depreciation for the
thirteenth year.
166. A company purchased and installed a machine on January 1 at a total cost of $72,000.
Straight-line depreciation was calculated based on the assumption of a five-year life and no
salvage value. The machine was disposed of on July 1 of the fourth year. The company uses
the calendar year.
1. Prepare the general journal entry to update depreciation to July 1 in the fourth year.
2. Prepare the general journal entry to record the disposal of the machine under each of these
three independent situations:
a. The machine was sold for $22,000 cash.
b. The machine was sold for $15,000 cash.
c. The machine was totally destroyed in a fire and the insurance company settled the claim
for $18,000 cash.
167. On April 1, Year 5 a company discarded a machine that had cost $10,000 and had
accumulated depreciation of $8,000 as of December 31, Year 4. The asset had a 5-year life
and $0 salvage value. Prepare the journal entries to record the updating of the depreciation
expense and discarding of this asset in Year 5.
168. On April 1, 2013, a company disposed of equipment for $14,200 cash that had cost
$35,000 on January 1, 2009. The equipment had a salvage value of $5,000, and a useful life
169. On January 2, 2010, a company purchased a delivery truck for $45,000 cash. The truck
had an estimated useful life of seven years and an estimated salvage value of $3,000. The
straight-line method of depreciation was used. Prepare the journal entries to record
depreciation expense and the disposition of the truck on September 1, 2014, under each of the
following assumptions:
a. The truck and $45,000 cash were given in exchange for a new delivery truck that had a cash
price of $60,000. This transaction has commercial substance.
b. The truck and $40,000 cash were exchanged for a new delivery truck that had a cash price
of $60,000. This transaction lacks commercial substance.
170. A company had net sales of $230,000 for 2013 and $288,000 for 2014. The company's
average total assets for 2013 were $150,000 and $180,000 for 2014. Calculate the total asset
turnover for each year and comment on the company's efficiency in the use of its assets.
171. A company had net sales of $541,500 in 2013 and $475,300 in 2014. Its average assets
were $410,000 for 2013 and $400,000 for 2014. (1) Calculate the total asset turnover for each
year. (2) Interpret and comment on the company's efficiency in the use of its assets.
172. Heidel Co. paid $750,000 cash to buy the plant assets of Rogers Co. that went out of
business. An independent appraiser assigned the following values to the assets acquired:
Land…………………………………….. $522,000
Building…………………………………. 243,000
Equipment………………………………. 135,000
Total…………………………………….. $900,000
Prepare Heidel's journal entry to record the acquisition of these assets.
173. A company purchased a special purpose machine on August 1 of the past year, and it was
installed and ready to run on January 1 of this year. The following costs were incurred in the
purchase and installation of the machine.
Invoice price ........................................................................
$1,200,000
Freight costs ........................................................................
6,000
Installation costs..................................................................
64,000
Electrical and power connections ......................................
32,000
Repairs to correct damage incurred during uncrating .........
12,000
Costs to adjust machine to appropriate specifications ........
56,000
Spare parts for future use ....................................................
108,000
Sales tax ..............................................................................
70,500
Fines incurred during transport of machine .......................
400
Cost of special foundation required for machine installation
28,500
Determine the total cost of the machine.
10-84
174. A company paid $770,000 plus $5,000 in closing costs for property that included land
appraised at $384,000; land improvements appraised at $128,000; and a building appraised at
$288,000. The plan is to use the building as a manufacturing plant. Determine the amounts
that should be recorded as:
(a) Land…………………. $ ______________________________________
(b) Land Improvements.... $ ______________________________________
(c) Building……………… $_______________________________________
175. Prepare journal entries to record the following transactions of a company during the
current year:
Mar 1 Purchased a truck for $30,000 with a 5-year useful life and a $5,000
salvage value. Also paid 6% sales tax, $350 for the annual truck license,
$500 to paint the truck with the company's colors and name, and $1,500 for
spare parts. All payments were in cash.
Mar 10 Purchased a garage from a neighboring business with a 7%, 4-year,
$75,000 note. The seller's book value for the garage was $42,750. The
estimated remaining useful life of the garage is 10 years.
June 1 Paid $1,000 cash to replace (uninsured) garage windows broken during a
