10–85
storm.
Aug 25 Purchased used office equipment for $14,700 cash. Sales tax was $825,
freight costs $250, and reconditioning costs $900, all of which were paid
in cash. The estimated useful life of the equipment is 3 years and salvage
value is $500.
Oct 5 Purchased store equipment for $24,500 cash. Paid $1,470 in sales tax,
$550 for repairs incurred from an accident during installation, $3,200 for
a special base to house the equipment, and $2,600 for supplies to be used
during periodic preventive maintenance. The estimated useful life of the
equipment is 8 years and salvage value is $1,200.
176. A company purchased equipment on July 3 of the current year and placed it in service on
August 1. The following costs were incurred in acquiring the equipment:
Purchase (invoice) price ………………………………………………
$215,600
Transportation …………………………………………………………….
1,400
Insurance during shipping ……………………………………………
200
One-year fire insurance beginning August 1 of the current year
1,200
Installation cost …………………………………………………………..
4,500
Raw materials and direct labor used to test the equipment.
1,500
Determine the amount to be recorded as cost for the equipment.
177. A company purchased land with a building for a total cost of $2,570,000 ($500,000 paid
in cash and the balance on a long-term note). It was estimated that the land and building had
market values of $900,000 and $2,100,000, respectively.
Determine the cost to be apportioned to the land and to the building and prepare the journal
entry to record the acquisition.
178. A company needed a new building. It found a suitable location with an existing old
building on the land. The company reached an agreement to buy the land and the building for
$960,000 cash. The old building was demolished to make way for the needed new building.
Following is information regarding the demolition of the old building and construction of the
new one:
Construction cost of new building including $660,000
for parking lot………………………………………. $9,560,000
Demolition of old building…………………………………. 300,000
Proceeds from sale of salvaged materials from old building 120,000
Prepare a single journal entry to record the above costs assuming all transactions are paid in
cash.
179. A company purchased land on which to construct a new building for a cost of $250,000.
Additional costs incurred were:
Real estate broker‘s commissions…………………………. $15,000
Legal fees incurred in purchase of the real estate………… 2,500
Landscaping……………………………………………….. 10,000
Expenses to remove old house located on land…………… 3,000
Proceeds from selling materials salvaged from old house 1,000
What total dollar amount should be charged to Land and what amount should be charged to
the new Building?
180. A company made the following expenditures in connection with the construction of its
new building:
$ 12,000
300,000
18,000
(4,000)
1,500
3,000
25,000
100,000
900
1,600
300
1,000,000
20,000
2,500
Prepare a schedule showing the amounts to be recorded as Land, Buildings, and Machinery.
1,600
181. A new machine is expected to produce 600,000 units of product during its 8-year useful
life. The machine cost $1,800,000 cash and it is estimated to have a $60,000 salvage value.
1. Calculate the depreciation if the machine produces 70,000 units of product during its first
year, using the units-of-production method.
2. Calculate the depreciation on the machine using the double-declining-balance method.
3. Calculate the depreciation on the machine using the straight-line method.
182. A company purchased a machine on January 1 of the current year for $750,000.
Calculate the annual depreciation expense for each year of the machine’s life (estimated at 5
years or 20,000 hours, with a salvage value of $75,000) using each of the below-mentioned
methods . During the machine’s 5-year life its hourly usage was: 3,000; 4,000; 5,000; 5,000;
and 3,000 hours.
Double-
Units-of- Declining-
Year Straight-line Production Balance
Year 1 $__________ $___________ $___________
Year 2 __________ ___________ ___________
Year 3 __________ ___________ ___________
Year 4 __________ ___________ ___________
Year 5 __________ ___________ ___________
Total __________ ___________ ___________
183. A company purchased an equipment system for $325,000 on January 2. The company
expects the equipment to last for eight years or 60,000 hours of operation, with an estimated
salvage value of $25,000. During the first year, the equipment was in operation for 8,000
hours, while in the second year, the equipment was in operation for 8,700 hours. Compute the
depreciation expense relating to the equipment for Year 1 and Year 2 using the following
depreciation methods:
a. Straight-line.
b. Double-declining-balance.
c. Units-of-production.
184. On January 1, a machine costing $260,000 with a 4-year life and an estimated $5,000
salvage value was purchased. It was also estimated that the machine would produce 500,000
units during its life. The actual units produced during its first year of operation were 110,000.
Determine the amount of depreciation expense for the first year under each of the following
assumptions:
1. The company uses the straight-line method of depreciation.
2. The company uses the units-of-production method of depreciation.
3. The company uses the double-declining-balance method of depreciation.
185. A company purchased a computer system on January 1, Year 1, for $1,600,000. Prepare
the journal entries to record depreciation for the first 6 months of Year 3 and the sale of the
computer assuming it is sold on July 1, Year 3, for $1,000,000 cash. The straight-line method
of depreciation was used based on an expected life of six years and a salvage value of
$130,000.
186. A company paid $314,000 for a machine that was expected to last five years and to have
a salvage value of $40,000. During the third year of the machine’s life, $37,000 cash was paid
for replacement parts that were expected to increase the machine’s productivity by 10% each
year. Prepare the journal entry to record the $37,000 cost incurred in the third year.
187. On January 1, a company purchased a machine for $75,000 that had a 6-year useful life
and a salvage value of $6,000. After three years of straight-line depreciation, the company
paid $7,500 cash at the beginning of the year to improve the efficiency of the machine. The
effect of the expenditure was to increase the productivity of the machine without increasing
its remaining useful life or changing its salvage value. Straight-line depreciation is used
throughout the machine’s life.
1. Prepare the journal entry to record the $7,500 expenditure.
2. Prepare the journal entry to record depreciation expense for the fourth year.
188. A company sold for $40,000 cash a machine that originally cost $90,000. The
accumulated depreciation on this machine was $47,000 at the time of the sale. What was the
company’s gain or loss on this sale?
189. A company had a building destroyed by fire. The building originally cost $650,000, and
its accumulated depreciation as of the date of the fire was $300,000. The company received
$400,000 cash from an insurance policy that covered the building and will use that money to
help rebuild. Prepare the single journal entry to record the destruction of the building and the
receipt of cash from the insurance company.
190. On April 1, 2013, a company discarded a computer that cost $15,000 and that had a
useful life of 4 years, and a salvage value of $1,000. Based on straight-line depreciation, the
accumulated depreciation as of December 31, 2012 was $10,700.
a. Prepare the journal entry to record depreciation up to the date of disposal of the computer.
b. Prepare the journal entry to record the disposal of the computer.
191. On April 1 of the current year, a company disposed of an automobile that had cost
$20,000. The auto had a salvage value of $2,000, and a useful life of 5 years. The accounting
records showed accumulated depreciation for this automobile of $8,100 as of April 1 of the
current year. The asset was discarded after an accident, and $10,500 cash was received from
an insurance claim. Prepare the journal entry to record the disposal of the automobile.
192. Mason Company sold a piece of equipment for $25,000 cash on December 31 after
recording the annual depreciation on the asset. The equipment had an original cost of $92,500
and accumulated depreciation of $60,000. Prepare the general journal entry to record the sale
of this asset.
193. A company purchased mining property for $1,560,000. The property was estimated to
contain 13,000,000 tons of ore. In the current year, the company removed and sold 247,000
tons of ore. Calculate the depletion expense for the current year.
194. A company purchased mining property containing 15,000,000 tons of ore for
$4,875,000. In Year 1, it mined 789,000 tons of ore and in Year 2, it mined 1,235,000 tons.
Calculate the depletion expense for Year 1 and Year 2.
195. A company purchased mining property containing 7,350,000 tons of ore for $1,837,500.
In Year 1, it mined and sold 857,000 tons of ore and in Year 2, it mined and sold 943,000 tons
of ore. Calculate the depletion expense for Year 1 and Year 2. What was the book value of the
property at the end of Year 2?