PROBLEM SET A
Problem 8-1A (50 minutes)
Part 1
Estimated
Market Value
Percent
of Total
Apportioned
Cost
Building…………..….…….. $508,800 53% $477,000
Land……………………….…. 297,600 31 279,000
2015
Jan. 1 Building…………….…………………………..……..….….….…….477,000
Land………………………………………..………………………….…279,000
Land Improvements……………………………….….….….…...27,000
Part 2
Year 2015 straight-line depreciation on building
Part 3
Year 2015 double-declining-balance depreciation on land improvements
Part 4
Accelerated depreciation does not lower the total amount of taxes paid over
the asset’s life. Instead, it defers or postpones taxes to the later years of an
asset’s useful life. This is because accelerated methods charge a higher
Problem 8-2A (25 minutes)
Year Straight-LineaUnits-of-Productionb
Double-Declining-
Balancec
1…..….............. $ 59,375 $110,000 $128,750
2…..….............. 59,375 62,300 64,375
3…..….............. 59,375 60,900 32,188
aStraight- line:
bUnits-of-production:
Year Units Unit Cost Depreciation
1…............. 220,000 $0.50 $110,000
2…............. 124,600 0.50 62,300
3…............. 121,800 0.50 60,900
Total.......... $237 ,500
cDouble-declining-balance:
(100%/4) x 2 = 50% depreciation rate
Year
Beginning
Book
Value
Annual
Depreciation
(50% of
Book Value)
Accumulated
Depreciation
at the End of
the Year
Ending Book Value
($257,500 Cost Less
Accumulated
Depreciation)
1......... $257,500 $128,750 $128,750 $128,750
2......... 128,750 64,375 193,125 64,375
3......... 64,375 32,188* 225,313 32,187
Problem 8-3A (45 minutes)
Part 1
Land
Building
2
Building
3
Land
Improve-
ments 1
Land
Improvements
2
Purchase price*…....…....…..
$1,612,000 $598,000 $390,000
Demolition…………………….…
328,400
Land grading…....….............
175,400
*Allocation of purchase price
Appraised
Value
Percent
of Total
Apportioned
Cost**
Land……….…………...…....…....… $1,736,000 62% $1,612,000
Building 2..…………………………. 644,000 23 598,000
**Multiply the percentages in column 3 by the $2,600,000 purchase price.
Part 2
2015
Jan. 1 Land………………………………….…………………………. 2,115,800
Building 2…………………………………….………….…... 598,000
Building 3…………………………………….………….…... 2,202,000
Part 3
2015
Dec. 31 Depreciation Expense—Building 2…………………….…...26,900
31 Depreciation Expense—Building 3…………….……….…..72,400
Accumulated Depreciation—Building 3…..….…..... 72,400
31 Depreciation Expense—Land Improv. 1……………….….32,500
Accum. Depreciation—Land Improv. 1………………. 32,500
31 Depreciation Expense—Land Improv. 2…………………..8,200
Accum. Depreciation—Land Improv. 2………………. 8,200
Problem 8-4A (50 minutes)
2014
Jan. 1 Equipment ……………..………………………………………...300,600
Jan. 3 Equipment……..…………………………….…………….….….…4,800
Cash…………………………………..………………………….. 4,800
To record betterment of loader.
*2014 depreciation after January 3rd betterment
Total original cost………..……………..………......…....…......…...... $300,600
Plus cost of betterment……..……………….……...…....…....…...... 4,800
2015
Jan. 1 Equipment……………………………………..…………..….…….5,400
Feb. 17 Repairs Expense—Equipment……………….….….….….. 820
To record ordinary repair on loader.
Dec. 31 Depreciation Expense—Equipment…………..…………..43,590*
*2015 depreciation after January 1st extraordinary repair
Total cost ($305,400 + $5,400)……………………………………………………………..….$310,800
Less accumulated depreciation ……………….…………………...…....…....…....…… 70,850
Book value………………………………………………………………………….…….………….239,950
Problem 8-5A (40 minutes)
2014
Jan. 1 Trucks……………………………………………………….….….….22,000
Dec. 31 Depreciation Expense—Trucks…………………………….. 4,000
2015
Dec. 31 Depreciation Expense—Trucks……………………………..5,200*
To record depreciation.
*2015 depreciation
Total cost………………………………………………………………………………………..…….$ 22,000
Less accumulated depreciation (from 2014)……….……..…….…......…....…....… 4,000
Book value………………………………………………………………………….…….………….18,000
Less revised salvage value………………………………………………………………….... 2,400
Remaining cost to be depreciated…………………………………………………………..$ 15,600
2016
Dec. 31 Depreciation Expense—Trucks…………………..………… 5,200
To record annual depreciation.
Dec. 31 Cash…………..…………………………….……………………….… 5,300
Accumulated Depreciation—Trucks……………………...14,400**
**Accumulated depreciation on truck at 12/31/2016
2014………………………………………..………………………….…. $ 4,000
2015………………………………………..………………………….…. 5,200
2016………………………………………..………………………….…. 5,200
Total…………………………………………………..…………………. $14,400
Loss ($5,300 cash received – $7,600 book value).........$ 2,300
Problem 8-6A (20 minutes)
1.
Jan. 2 Machinery……………….………………………….….….……. 178,000
Cash…………………………………..….…….….….….…. 178,000
To record machinery purchase.
To record machinery costs.
2. a. First year
Dec. 31 Depreciation Expense—Machinery…..…….….….….….28,000
b. Fifth year
Dec. 31 Depreciation Expense—Machinery…..…….….….….….28,000
3. Accumulated depreciation at the date of disposal
Five years’ depreciation (5 x $28,000)……………………..$140,000
Book value at the date of disposal
a. Sold for $15,000 cash
Dec. 31 Cash………………………………..…………………………………..15,000
Loss on Sale of Machinery…………….…………….….…...27,000
b. Sold for $50,000 cash
Dec. 31 Cash………………………………..…………………………………..50,000
c. Destroyed in fire and collected $30,000 cash from insurance co.
Dec. 31 Cash………………………………..…………………………………..30,000
Problem 8-7A (20 minutes)
a.
July 23 Mineral Deposit……………………………………………..…..…4,715,000
Cash…………………………………..………………………….. 4,715,000
To record purchase of mineral deposit.
b.
July 25 Machinery……………..……………………………..………………410,000
Cash…………………………………..………………………….. 410,000
To record costs of machinery.
c.
Analysis Component
Similarities—Amortization, depletion, and depreciation are similar in that
Differences—They are different in that they apply to different types of long-
term assets: amortization applies to intangible assets with (definite) useful
Problem 8-8A (20 minutes)
1.
2015 (a)
June 25 Leasehold…………….……………………………..…………….…200,000
Cash…………………………………………..……………….…. 200,000
To record payment for sublease.
(b)
(b)
Dec. 31 Amortization Expense—Leasehold Improvements…………6,500
Accumulated Amortization—Leasehold
Improvements…….………….………..………….………….….. 6,500
To record leasehold improvement amortization
($130,000/10 years remaining on lease x 6/12).
(c)
Dec. 31 Rent Expense……………..……………………………………..…40,000
Prepaid Rent……………….……………..….….….…….…. 40,000
To record one-half year lease rental ($80,000 x 6/12).