16. Speedy Printing purchased a new printing press for $80,000. It depreciates the press over a five-year
period, using the double-declining-balance method of depreciation. If the press has an $8,000
estimated residual value, calculate depreciation expense for each of the five years. (Show your work.)
17. Present two arguments in favor of the use of accelerated depreciation.
18. On November 1, 2008, Rob’s Auto Repair purchased diagnostic equipment for $18,000. The
equipment had an estimated residual value of $3,000 and a five-year life and was sold on May 1, 2010.
Assuming that the company depreciates the asset on a straight-line basis and reports on a calendar-year
basis, journalize the following independent transactions in the journal provided. (Omit explanations.)
a. The entry to update depreciation to May 1, 2010
b. The entry to record the sale for $15,000
c. The entry to record the sale instead for $11,000
d. The entry to record the sale instead for $13,500
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Credit
19. On October 1, 2008, Racie’s Auto Repair purchased diagnostic equipment for $13,600. The equipment
had an estimated residual value of $4,000 and an eight-year life and was sold on April 1, 2010.
Assuming that the company depreciates the asset on a straight-line basis and reports on a calendar-year
basis, journalize the following independent transactions in the journal provided. (Omit explanations.)
a. The entry to update depreciation to April 1, 2010
b. The entry to record the sale for $12,000
c. The entry to record the sale instead for $8,600
d. The entry to record the sale instead for $11,800
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[($13,600 – $4,000) ÷ 8 = $1,200 3/12]
20. Under what circumstances will a loss be recorded on the sale of equipment, and what effect will the
loss have on stockholders’ equity?
21. A truck that cost $20,000 and on which $8,000 of depreciation had been recorded was disposed of for
$11,600. Indicate whether a gain or loss should be recorded, and for what amount.
22. A machine that cost $36,000 and on which $26,000 of depreciation had been recorded was disposed of
for $10,400. Indicate whether a gain or a loss should be recorded, and for what amount.
23. In 20xx, Minneapolis Mining purchased a mineral deposit for $12,000,000. It is estimated that
15,000,000 tons can be extracted from the mine. Calculate depletion expense during 20xx when
700,000 tons were extracted and sold.
24. In 20xx, Massachusetts Mining purchased a mineral deposit for $36,000,000. It is estimated that
15,000,000 tons can be extracted from the mine. Calculate depletion expense during 20xx when
800,000 tons were extracted and sold.
25. For each of the following descriptions, provide the name of the intangible asset that is being described.
_______________ 1. Exclusive right to use a name or symbol
_______________ 2. Exclusive right to sell photographic reproductions of a painting
_______________ 3. Excess paid for a business over the fair market value of the net
assets purchased
_______________ 4. Long-term exclusive right to use certain property
_______________ 5. A right to an exclusive territory or market
_______________ 6. Exclusive right to use an invention to sell or manufacture a certain
product or use a specific process
ANS:
26. What is goodwill and when may it be recorded?
27. Indicate whether each of the following expenditures should be classified as land (L), land
improvements (LI), buildings (B), equipment (E), or none of these (X).
_____ 1. Clearing costs
_____ 2. Driveway cost
_____ 3. Computer installation cost
_____ 4. Architect’s fee for building plans
_____ 5. Surveying costs
_____ 6. Cost of assembly line trial run
_____ 7. Property taxes paid after purchase
_____ 8. Grading costs
_____ 9. Insurance and freight on computer purchased
_____ 10. Cost of lighting for parking lot
_____ 11. Landscaping cost
_____ 12. Material and labor costs incurred to construct factory
_____ 13. Cost of tearing down a warehouse on land just purchased
_____ 14. Utilities cost during first year
_____ 15. Cost of building wing
_____ 16. Sales tax on file cabinets purchased
_____ 17. Real estate commissions on land purchased
_____ 18. Contractor’s fee for building construction
_____ 19. Cost to put up chain-link fence
_____ 20. Accrued taxes on land purchased
ANS:
28. In the journal provided, prepare entries for the following independent transactions. (Omit
explanations.)
a. Purchased land and a building on the land for $960,000. The appraised values of the land and
building are $350,000 and $650,000, respectively.
b. Paid $5,000 for a sewage system, $15,000 for a parking lot, $1,000 to tear down a shack on land just
purchased, and $10,000 for a block wall.
c. Purchased a truck two years ago for $18,000 with an original six-year estimated useful life and
$3,000 residual value. After a full two years of use, revised the residual value to $4,000 and the useful
life to a total of seven years. Record depreciation for year 3, assuming the straight-line method.
d. Purchased a machine on May 1, 2010 (assume a calendar-year accounting period) for $15,000. The
machine has an estimated life of 10,000 hours and no salvage value. Record depreciation for 2010
under the production method, assuming that the machine was used 2,000 hours.
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Credit
29. On January 1, 2009, Pung Manufacturing Company purchased for $94,000 a machine that will produce
an estimated 75,000 units of Product X. The machine has an estimated useful life of five years and an
estimated residual value of $4,000. Calculate the following amounts: (a) the carrying value of the
machine after it has been used for three and one-half years, under the straight-line method; (b)
depreciation expense for 2010, under the production method (assume that 13,000 units were produced
that year); and (c) accumulated depreciation at the end of 2010, under the double-declining-balance
method. (Show your work.)
30. On January 1, 2005, Mal’s Pizza purchased for $24,000 a delivery truck that will be driven an
estimated 120,000 miles. The truck has an estimated useful life of eight years and an estimated
residual value of $6,000. Calculate the following amounts: (a) depreciation expense for 2010, under
the production method (assume that 17,000 miles were driven that year); (b) the accumulated
depreciation after the truck has been used for five and one-half years, under the straight-line method;
and (c) depreciation expense for 2007, under the double-declining-balance method.
31. On January 2, 2009, Topanga Company purchased a machine for $90,000. The machine has a
five-year estimated useful life and a $6,000 estimated residual value. In addition, the company expects
to use the machine 200,000 hours. Assuming that the machine was used 35,000 hours during 2010,
complete the following chart. If a figure cannot be determined, indicate so by placing an X in the box.
(Show your work.)
Method
Depreciation Expense for
2010
Carrying Value at 12/31/10
Straight-line
Production
Double-declining-balance
32. On January 2, 2009, Vanowen Company purchased a machine for $80,000. The machine has an
eight-year estimated useful life and an $8,000 estimated residual value. In addition, the company
expects to use the machine 200,000 hours. Assuming that the machine was used 35,000 hours during
2010, complete the following chart. If a figure cannot be determined, indicate so by placing an X in the
box. (Show your work.)
Method
Depreciation Expense for
2010
Carrying Value at 12/31/10
Straight-line
Production
Double-declining-balance
33. Al’s Car Wash purchased a piece of equipment on October 1, 2008, for $27,000. The equipment has an
estimated life of four years or 40,000 units of production and an estimated residual value of $2,000.
Compute depreciation for 2008, 2009, and 2010 using the following methods: (a) straight-line, (b)
production, and (c) double-declining-balance. Assume that the company’s fiscal year corresponds to
the calendar year and that 3,000, 12,000, and 8,000 units were produced in the respective years. (Show
your work.)
34. On January 1, 2008, North Side Manufacturing Company purchased for $40,000 a machine that will
produce an estimated 75,000 units of Product X. The machine has an estimated useful life of four years
and an estimated residual value of $8,000. Calculate the following amounts, rounding answers to the
nearest dollar: (a) the carrying value of the machine after it has been used for three and one-half years,
under the straight-line method; (b) depreciation expense for 2010, under the production method
(assume that 13,000 units were produced that year); and (c) accumulated depreciation at the end of
2009, under the double-declining-balance method. (Show your work.)
Method
Straight-line
Production
Double-declining-balance
35. On January 1, 2005, Town Spa Pizza purchased for $16,000 a delivery truck that will be driven an
estimated 100,000 miles. The truck has an estimated useful life of ten years and an estimated residual
value of $5,000. Calculate the following amounts: (a) depreciation expense for 2010, under the
production method (assume that 17,000 miles were driven that year); (b) the accumulated depreciation
after the truck has been used for five and one-half years, under the straight-line method; and (c)
depreciation expense for 2007, under the double-declining-balance method. (Show your work.)
36. Bob Quinn is in the gravel business and has engaged you to assist in evaluating his company, Quinn
Gravel Company. Your first step is to collect the facts about the company’s operations. On January 3,
2010, Bob purchased a piece of property with gravel deposits for $3,155,000. He estimated that the
gravel deposits contained 4,700,000 cubic yards of gravel. The gravel is used for making roads. After
the gravel is gone, the land, which is in the desert, will be worth only about $100,000.
The equipment required to extract the gravel cost $726,000. In addition, Bob had to build a small
frame building to house the mine office and a small dining hall for the workers. The building cost
$76,000 and will have no residual value after its estimated useful life of ten years. It cannot be moved
from the mine site. The equipment has an estimated useful life of six years (with no residual value) and
also cannot be moved from the mine site.
Trucks for the project cost $154,000 (estimated life, six years; residual value, $10,000). The trucks, of
course, can be used at a different site.
Bob estimated that in five years all the gravel would be mined and the mine would be shut down.
During 2010, 1,175,000 cubic yards of gravel were mined. The average selling price during the year
was $1.33 per cubic yard, and at the end of the year 125,000 cubic yards remained unsold. Operating
expenses were $426,000 for labor and $116,000 for other expenses.
a. Prepare adjusting entries to record depletion and depreciation for the first year of operation (2010).
Assume that the depreciation rate is equal to the percentage of the total gravel mined during the year,
unless the asset is movable. For movable assets, use the straight-line method. (Omit explanations.)
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b. Prepare an income statement for 2010 for Quinn Gravel Company.
Quinn Gravel Company
Income Statement
For the Year Ended December 31, 2010
c. What is your evaluation of the company’s operations? Explain your evaluation and offer
suggestions. Ignore income tax effects.
37. Starsky Manufacturing Company purchased three machines during the year:
Feb. 10
Machine 1
$ 1,800
July 26
Machine 2
12,000
Oct. 11
Machine 3
21,600
Each machine is expected to last six years and have no residual value. The company’s fiscal year
corresponds to the calendar year. Using the straight-line method, compute the depreciation charge for
each machine for the year. Round amounts to the nearest dollar.
38. A truck that cost $40,000 and on which $30,000 of accumulated depreciation had been recorded was
disposed of on July 1, the first day of the new fiscal year. Prepare entries in journal form (without
explanation) to record the disposal under each of the following assumptions:
a. It was discarded as having no value.
b. It was sold for $7,200 cash.
c. It was sold for $13,500 cash.
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Accumulated Depreciation–Truck
$40,000 – $30,000 = $10,000 loss
Cash
Accumulated Depreciation–Truck
Truck
July1
Accumulated Depreciation–Truck
Gain on Sale of Truck
39. A truck that cost $29,600 and on which $21,600 of accumulated depreciation had been recorded was
disposed of on September 1, the first day of the new fiscal year. Prepare entries in journal form
without explanation to record the disposal under each of the following assumptions:
a. It was discarded as having no value.
b. It was sold for $6,000 cash.
c. It was sold for $11,200 cash.
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40. Leroy Mining Company purchased land containing an estimated 10,000,000 tons of ore for a cost of
$750,000. The land without the ore is estimated to be worth $150,000 (the residual value). Buildings
costing $45,000 with an estimated useful life of 20 years were erected on the site. Because of the
remote location, the buildings have no residual value. The company expects that all the usable ore can
be mined in eight years. During its first year of operation, the company mined 1,000,000 tons of ore
and at the end of the year had an inventory of 200,000 tons. Determine the following amounts for the
first year: (a) depletion charge per ton; (b) depletion expense for year; and (c) depreciation expense for
buildings, using the straight-line method. (Show your work.)
41. Bob Jefferson obtained a ten-year sublease on a busy corner to open a used car business. To obtain the
sublease, he had to pay $7,000 to the current tenant, who had 12 years to go on his lease. The annual
cost of the lease is $9,000. In addition to paying for the sublease, Bob paid $5,000 to pave the lot. The
paving will have no residual value after its useful life of ten years. Prepare entries in journal form to
record the following (omit explanations):
a. The payment for the sublease
b. The payment for the paving
c. The lease payment for the first year
d. The expense, if any, associated with the sublease for the first year
e. The expense, if any, associated with the paving, using the straight-line method for the first year
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42. Match each of the following terms with the descriptions below by supplying the letter of the correct
term.
a. Leasehold
f. Goodwill
b. Trademark
g. Software
c. Copyright
h. Noncompete covenant
d. Patent
i. Franchise
Leasehold
Cash
Leasehold Improvements
Cash
Lease Expense
Cash
Amortization Expense
Leasehold
$7,000 ÷ 10
e. Customer list
j. Research and development
___ 1. The amount paid for a business in excess of its fair market value
___ 2. A registered symbol or name to identify a product or service
___ 3. An exclusive right for 20 years to produce a particular product
___ 4. A contract restricting the rights of others to operate in a specific industry
___ 5. A right to occupy land or buildings under a long-term rental contract
___ 6. An exclusive right to sell literary, artistic, or musical works and computer software
___ 7. Capitalized costs associated with computer programs developed for sale, lease, or
internal use
___ 8. A right to an exclusive territory or market
___ 9. A planned search for a new product, as well as pure research
___ 10. Access to the names of subscribers or patrons
ANS: