Chapter 9 – Long-Term Assets: Fixed and Intangible
130. What is the cost of the land, based upon the following data?
Land purchase price
$178,000
Broker’s commission
15,000
Payment for the demolition
and removal of existing building
5,000
Cash received from the sale of materials
salvaged from the demolished building
2,000
131. Falcon Company acquired an adjacent lot to construct a new warehouse, paying $40,000 and giving a short-term note
for $410,000. Legal fees paid were $13,275, delinquent taxes assessed were $14,500, and fees paid to remove an old
building from the land were $15,800. Materials salvaged from the demolition of the building were sold for $6,800. A
contractor was paid $890,000 to construct the new warehouse. Determine the cost of the land to be reported on the
balance sheet and show your work.
Initial cost of land ($40,000 + $410,000)
Legal fees
Delinquent taxes
Demolition of building
Salvage of materials
Cost of land
Chapter 9 – Long-Term Assets: Fixed and Intangible
132. Identify each of the following expenditures as chargeable to (a) Land, (b) Land Improvements, (c) Buildings, (d)
Machinery and Equipment, or (e) other account.
(1)
Cost of paving parking area for employees and customers
(2)
Insurance during construction of building
(3)
Interest incurred on loan during construction of building
(4)
Fee paid for installation of equipment
(5)
Special foundation for new equipment acquired
(6)
Insurance on new equipment while in transit
(7)
Freight charges on new equipment
(8)
Cost of repairing vandalism damage to equipment during installation
(9)
Sales tax on new equipment
(10)
Cost incurred in repairing damage resulting from installation of new equipment
(11)
Cost of land fill for building site
(12)
Cost of lubricating oil purchased for periodic oil changes for equipment
(13)
Parking lot lighting
(14)
Installing a fence around the parking lot
(15)
Repainting the trim on a building
(16)
Special assessment paid to city for extension of water main to property
(17)
Cost of razing and removing the old building on property acquired for a building site
(18)
Delinquent real estate taxes assumed by purchaser on property acquired for a building site
(19)
Attorney’s fee for title search
(20)
Architect’s fee for building plans and supervision of construction
(a)
(b)
(c)
(d)
(e)
133. A number of major structural repairs completed at the beginning of the current fiscal year at a cost of $1,000,000 are
expected to extend the life of a building 10 years beyond the original estimate. The original cost of the building was
$6,552,000, and it has been depreciated by the straight-line method for 25 years. Estimated residual value is negligible
and has been ignored. The related accumulated depreciation account after the depreciation adjustment at the end of the
preceding fiscal year is $4,550,000.
(a)
What has the amount of annual depreciation been in past years?
(b)
What was the original life estimate of the building?
(c)
To what account should the $1,000,000 be debited?
(d)
What is the book value of the building after the extraordinary repairs have been made?
(e)
What is the expected remaining life of the building after the extraordinary repairs have been
made?
(f)
What is the amount of straight-line depreciation for the current year, assuming that the
repairs were completed at the very beginning of the current year? Round to the nearest
dollar.
Chapter 9 – Long-Term Assets: Fixed and Intangible
134. Journalize each of the following transactions:
(a)
A wing costing $2,345,000 was added to the building. A new mortgage was issued for the
cost.
(b)
Equipment was upgraded to increase its capacity to produce widgets. The upgrade cost of
$11,500 was paid in cash.
(c)
A major overhaul costing $8,000 on a machine increased the useful life by 4 years. The
payment was made in cash.
135. On April 15, Compton Co. paid $2,800 to upgrade a delivery truck and $125 for an oil change. Journalize the entries
for the upgrade to delivery truck and oil change expenditures.
Chapter 9 – Long-Term Assets: Fixed and Intangible
136. XYZ Co. incurred the following costs related to the office building used in operating its sports supply company:
(a)
Replaced a broken window.
(b)
Replaced the roof that had been on the building 23 years.
(c)
Serviced all the air conditioners before summer started.
(d)
Replaced the air conditioners in the customer service areas.
(e)
Added a warehouse to the back of the building.
(f)
Repainted the interior walls.
(g)
Installed window shutters on all windows.
Classify each of the costs as a capital expenditure or a revenue expenditure.
137. Comment on the validity of the following statements. “As an asset loses its ability to provide services, cash needs to
be set aside to replace it. Depreciation accomplishes this goal.”
138. Computer equipment was acquired at the beginning of the year at a cost of $65,000 that has an estimated residual
value of $3,800 and an estimated useful life of 8 years. Determine the (a) depreciable cost, (b) straight-line rate, and (c)
annual straight-line depreciation.
(a)
$61,200 (Initial cost – Estimated residual value = $65,000 – $3800)
(b)
12.5% (1 / 8)
(c)
$7,650 ($61,200 × 0.125)
Chapter 9 – Long-Term Assets: Fixed and Intangible
139. The double-declining balance rate for calculating depreciation expense is determined by doubling the straight-line
rate. Assuming that an asset has a useful life of 25 years, determine the rate to be used if using the double-declining-
balance method.
140. Copy equipment was acquired at the beginning of the year at a cost of $72,000 that has an estimated residual value of
$9,000 and an estimated useful life of 5 years. It is estimated that the machine will output an estimated 1,000,000
copies. This year, 315,000 copies were made. Determine the (a) depreciable cost, (b) depreciation rate, and (c) the units-
of-output depreciation for the year.
141. A machine costing $57,000 with a 6-year life and $54,000 depreciable cost was purchased January 1. Compute the
yearly depreciation expense using straight-line depreciation.
142. A machine costing $185,000 with a 5-year life and $20,000 residual value was purchased January 2. Compute
depreciation for each of the five years, using the double-declining-balance method.
Chapter 9 – Long-Term Assets: Fixed and Intangible
143. Computer equipment was acquired at the beginning of the year at a cost of $63,000 that has an estimated residual
value of $3,000 and an estimated useful life of 5 years. Determine the (a) depreciable cost (b) double-declining-balance
rate, and (c) double-declining-balance depreciation for the first year.
(c) $25,200 ($63,000 × 40%)
144. Convert each of the following estimates of useful life to a straight-line depreciation rate, stated as a percentage.
(a)
2 years
(b)
8 years
(c)
10 years
(d)
20 years
(e)
25 years
(f)
40 years
(g)
50 years
(g) 2% (1/50)
145. Prior to adjustment at the end of the year, the balance in Trucks is $300,900 and the balance in Accumulated
Depreciation—Trucks is $88,200. Details of the subsidiary ledger are as follows:
Truck
No.
Cost
Estimated
Residual Value
Estimated Useful
Life
Accumulated
Depreciation at
Beginning of Year
Miles Operated
During Year
1
$100,000
$13,000
300,000
—
30,000
2
72,900
9,900
300,000
$60,000
25,000
3
38,000
3,000
200,000
8,050
45,000
4
90,000
13,000
200,000
20,150
40,000
Required:
(a)
Based on the units-of-output method, determine the depreciation rates per mile and the
amount to be credited to the accumulated depreciation section of each of the subsidiary
accounts for the miles operated during the current year.
(b)
Journalize the entry to record depreciation for the year.
Chapter 9 – Long-Term Assets: Fixed and Intangible
146. An asset was purchased for $58,000 and originally estimated to have a useful life of 10 years with a residual value of
$3,000. After two years of straight-line depreciation, it was determined that the remaining useful life of the asset was only
2 years with a residual value of $2,000.
(a) Determine the amount of the annual depreciation for the first two years.
(b) Determine the book value at the end of Year 2.
(c) Determine the depreciation expense for each of the remaining years after revision.
useful life = ($47,000 – $2,000) / 2]
147. For each of the following fixed assets, determine the depreciation expense for Year 3:
Disposal date is N/A if asset is still in use.
Method: SL = straight line; DDB = double declining balance
Assume the estimated life is 5 years for each asset.
Item
Cost
Residual
Value
Purchase Date
Disposal date
Depr. Method
Depr.
Expense Year 3
A
$40,000
$4,000
July 1,Year 3
N/A
SL
B
$50,000
$5,000
Jan. 1, Year 1
Aug. 31,Year 3
SL
C
$60,000
$2,000
Oc.t 1, Year 3
N/A
DDB
D
$80,000
$10,000
Jan. 1, Year 2
April 1, Year 3
DDB
(b)
Depreciation Expense—Trucks
Accumulated Depreciation—Trucks
Chapter 9 – Long-Term Assets: Fixed and Intangible
A
$40,000
N/A
B
$50,000
C
$60,000
N/A
D
$80,000
$10,000
148. Equipment purchased at the beginning of the fiscal year for $360,000 is expected to have a useful life of 5 years, or
14,000 operating hours, and a residual value of $10,000. Compute the depreciation for the first and second years of use
by each of the following methods:
(a)
straight-line
(b)
units-of-output (1,200 hours first year; 2,250 hours second year)
(c)
double-declining-balance
(a)
(b)
(c)
(a)
(b)
(c)
149. Machinery is purchased on July 1 of the current fiscal year for $240,000. It is expected to have a useful life of 4
years, or 25,000 operating hours, and a residual value of $15,000. Compute the depreciation for the last six months of the
current fiscal year ending December 31 by each of the following methods:
(a)
straight-line
(b)
double-declining-balance
(c)
units-of-output (used for 1,600 hours during the current year)
(a)
(b)
(c)
Chapter 9 – Long-Term Assets: Fixed and Intangible
150. Determine the depreciation, for the year of acquisition and for the following year of a fixed asset acquired on
October 1 for $500,000, with an estimated life of 5 years, and residual value of $50,000, using (a) the double declining-
balance method and (b) the straight-line method. Assume a fiscal year ending December 31.
(a)
Following year: $180,000 ($500,000 – $50,000 × 0.40)
(b)
Following year: $90,000 [($500,000 – $50,000) / 5]
LEARNING OBJECTIVES:
151. Equipment costing $80,000 with a useful life of 10 years and a residual value of $8,000 has been depreciated for 6
years by the straight-line method. Assume a fiscal year ending December 31.
(a)
What is the book value at the end of the sixth year of use?
(b)
If early in the seventh year it is estimated that the remaining useful life is 5 years
(instead of 4) and the residual value is $6,000, what is the amount of depreciation for
the seventh year?
(b)
($36,800 – $6,000) / 5 = $6,160
LEARNING OBJECTIVES:
152. Golden Sales has bought $135,000 in fixed assets on January 1st associated with sales equipment. The residual value
of these assets is estimated at $10,000 at the end of their 4-year service life. Golden Sales managers want to evaluate the
options of depreciation.
(a) Compute the annual straight-line depreciation and provide the sample depreciation journal entry to be posted
at the end of each of the years.
(b) Write the journal entries for each year of the service life for these assets using the double-declining balance
method.
LEARNING OBJECTIVES:
Chapter 9 – Long-Term Assets: Fixed and Intangible
Acquisition cost
Less residual value
Depreciable value
Divided by service life
$135,000 × 50% = $67,500
($135,000 – $67,500) × 50% = $33,750
($135,000 – $67,500 – $33,750) × 50% = $16,875
$135,000 – $67,500 – $33,750 – $16,875 – $10,000 = $6,875 *
Equipment
Equipment
153. On July 1, Harding Construction purchases a bulldozer for $228,000. The equipment has a 8-year life with a residual
value of $16,000. Harding uses straight-line depreciation.
(a) Calculate the depreciation expense and provide the journal entry for the first year ending December 31.
(b) Calculate the third year’s depreciation expense and provide the journal entry for the third year ending
December 31.
(c) Calculate the last year’s depreciation expense and provide the journal entry for the last year.
Chapter 9 – Long-Term Assets: Fixed and Intangible
154. 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.
Chapter 9 – Long-Term Assets: Fixed and Intangible
155. Eagle Country Club has acquired a lot to construct a clubhouse. Eagle had the following costs related to the
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.
Architects’ fees
Construction labor
Engineers’ fees
Insurance costs incurred during construction
Interest on money borrowed for construction
Building materials
Sales taxes
Depreciation Expense
Depreciation
Chapter 9 – Long-Term Assets: Fixed and Intangible
156. 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.
Depreciation expense for Year 4 $ 8,178
157. A copy machine acquired on May 1 with a cost of $2,545 has an estimated useful life of 3 years. Assuming that it
will have a residual value of $445, determine the depreciation for the first and second year by the straight-line method.
Round your answers to the nearest whole dollar.
Second year = $700
158. A copy machine acquired with a cost of $1,410 has an estimated useful life of 4 years. It is also expected to have a
useful operating life of 13,350 copies. Assuming that it will have a residual value of $75, determine the depreciation for
the first year by the
(a)
straight-line method
(b)
double-declining-balance method
(c)
units-of-output method (4,500 copies were made the first year)
Chapter 9 – Long-Term Assets: Fixed and Intangible
159. On July 1, Andrew Company purchased equipment at a cost of $150,000 that has a depreciable cost of $120,000 and
an estimated useful life of 3 years or 60,000 hours.
Using straight-line depreciation, prepare the journal entry to record depreciation expense for (a) the first year, (b) the
second year, and (c) the last year.
Chapter 9 – Long-Term Assets: Fixed and Intangible
160. A copy machine acquired on July 1 with a cost of $1,450 has an estimated useful life of 4 years. Assuming that it
will have a residual value of $250, determine the depreciation for the first year by the double-declining-balance method.
*Rate = (100%/Life) × 2
Bloom’s: Applying
161. Champion Company purchased and installed carpet in its new general offices on March 31 for a total cost of
$18,000. The carpet is estimated to have a 15-year useful life and no residual value.
(a)
Prepare the journal entries necessary for recording the purchase of the new carpet.
(b)
Record the December 31 adjusting entry for the partial-year depreciation expense for the
carpet assuming that Champion Company uses the straight-line method.
(a)
Mar.
Carpet
18,000
Cash
18,000
(b)
Depreciation Expense
Accumulated Depreciation
Carpet depreciation
162. Solare Company acquired mineral rights for $60,000,000. The diamond deposit is estimated at 6,000,000
tons. During the current year, 2,300,000 tons were mined and sold.
(a)
Determine the depletion rate.
(b)
Determine the amount of depletion expense for the current year.
(c)
Journalize the adjusting entry to recognize the depletion expense.
(a)
(b)
$23,000,000 ($10 × 2,300,000 tons)
(c)
Depletion Expense
23,000,000
Accumulated Depletion
23,000,000