207) A company purchased a cooling system on January 2 for $225,000. The system had an
estimated useful life of 15 years. After using the system for 13 full years, 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 cooling system.
(b) Prepare the journal entry at December 31, to record the revised depreciation for the thirteenth
year.
208) A company purchased and installed equipment 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 equipment 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 equipment under each of these
three independent situations:
a. The equipment was sold for $22,000 cash.
b. The equipment was sold for $15,000 cash.
c. The equipment was totally destroyed in a fire and the insurance company settled the claim for
$18,000 cash.
209) A company purchased and installed machinery on January 1 at a total cost of $93,000.
Straight-line depreciation was calculated based on the assumption of a five-year life and no
salvage value. The machinery was disposed of on July 1 of year four. The company uses the
calendar year.
1. Prepare the general journal entry to update depreciation to July 1 in year four.
2. Prepare the general journal entry to record the sale of the machine for $27,000 cash.
210) 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
no salvage value. Prepare the journal entries to record the updating of the depreciation expense
and discarding of this asset in Year 5.
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211) On January 1, 2016, a company disposed of equipment for $16,200 cash that had cost
$35,000, a salvage value of $5,000, and a useful life 10 years. The double-declining-balance
depreciation method was used. On December 31, 2015, accumulated depreciation was $20,664.
Prepare a journal entry to record the disposal of the equipment.
212) 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 has commercial substance.
213) A company had net sales of $230,000 for Year 1 and $288,000 for Year 2. The company’s
average total assets for Year 1 were $150,000 and $180,000 for Year 2. Calculate the total asset
turnover for each year and comment on the company’s efficiency in the use of its assets.
214) A company had net sales of $1,540,500 in Year 1 and $1,495,000 in Year 2. Its average
assets were $810,000 for Year 1 and $800,000 for Year 2. (1) Calculate the total asset turnover
for each year. (2) Interpret and comment on the company’s efficiency in the use of its assets.
215) Schwartz Co. paid $780,000 cash to buy the plant assets of Kimberly 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 Schwartz’ journal entry to record the acquisition of these assets.
216) A company purchased a special purpose machine on September 15 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. Determine the total cost of the machine.
Invoice price plus sales tax
$1,270,500
Freight costs
9,000
Setup costs
51,000
Costs to adjust machine to appropriate specifications
36,000
Electrical connections
32,000
Maintenance supplies for future use
108,000
Traffic fine incurred during transport of machine
300
Cost of special foundation for machine
18,500
Total machine cost:
217) A company paid $595,000 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……………… $ ________
218) Prepare journal entries to record the following transactions of a company during the current
year:
219) A company purchased equipment on June 28 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.
220) A company purchased land with a building for a lump-sum 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 $600,000 and $2,400,000, respectively.
Determine the cost to be apportioned to the land and to the building and prepare the journal entry
to record the acquisition.
221) 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 $8,900,000
Cost for parking lot………………………………………. $260,000
Demolition of old building…………………………… 200,000
Proceeds from sale of salvaged materials from old building 70,000
Prepare a single journal entry to record the above costs assuming all transactions are paid in
cash.
222) A company purchased land on which to construct a new building for a cost of $350,000.
Additional costs incurred were:
Real estate broker’s commissions…………………………. $24,500
Legal fees incurred in purchase of the real estate………… 1,500
Landscaping……………………………………………….. 8,000
Cost 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
Building or other accounts?
223) A company made the following expenditures in connection with the construction of a new
building:
Architect’s fees
$ 12,000
Cash paid for land and unusable building on the land
300,000
Removal of old building
18,000
Salvage from sale of old building materials
(4,000)
Construction survey
1,500
Legal fees for title search
3,000
Excavation for basement construction
25,000
Machinery purchased for operations
100,000
Storage and delivery charges on machinery because building
was not ready when machinery was delivered
900
Freight on machinery purchased
1,600
Construction costs of new building
1,000,000
Installation of machinery
2,500
Prepare a schedule showing the amounts to be recorded as Land, Buildings, and Machinery.
Architect’s fees
Cash paid for land and old building
Removal of old building
Salvage from old building materials
Building site survey
Title search legal fees
Basement excavation
Machinery
Machinery storage and delivery*
Freight on machinery
New building
Machinery installation
Totals
224) A new machine costing $1,800,000 cash and estimated to have a $60,000 salvage value was
purchased on January 1. The machine is expected to produce 600,000 units of product during its
8-year useful life. Calculate the depreciation expense in the first year under the following
independent situations:
1. The company uses the units-of-production method and the machine produces 70,000 units of
product during its first year.
2. The company uses the double-declining-balance method.
3. The company uses the straight-line method.
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225) 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.
Straight-line
Units-of-production
Double-declining
balance
Year 1
Year 2
Year 3
Year 4
Year 5
Totals
226) A company purchased an equipment system for $325,000 on January 2. The company
expects the equipment to last for eight years or 81,250 hours of operation, with no estimated
salvage value. 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.
227) On January 1, a machine costing $260,000 with a 6-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.
228) Suarez Company uses the straight-line method of depreciation. The company purchased a
computer system on January 1, Year 1, for $1,600,000 with an expected life of six years and a
salvage value of $130,000. Assuming the computer is sold on July 1, Year 3 for $1,000,000
cash, prepare the journal entries to record depreciation for the first 6 months of Year 3 and the
sale of the computer.