PROBLEM SET B
Problem 8-1B (50 minutes)
Part 1
Estimated
Market Value
Percent
of Total
Apportioned
Cost
Building…………….…….…. $ 890,000 50% $ 900,000
Land……………….………….. 427,200 24 432,000
2015
Jan. 1 Buildings………….…………………..…………….….…….…….…900,000
Land………………………………………..…………………….….…..432,000
Land Improvements…………………………………….….……..252,000
To record asset purchases.
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 increase 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 8-2B (25 minutes)
Cost of machine….…….……..…….……..…………..………...$324,000
Total depreciable cost…….…….……..…….…….…………..$294,000
Year Straight-LineaUnits-of-Productionb
Double-Declining-
Balancec
1…..….…….…. $ 58,800 $ 71,120 $129,600
2…..….…….…. 58,800 64,080 77,760
3…..….…….…. 58,800 63,400 46,656
Year Units Unit Cost Depreciation
1………...... 355,600 $0.20 $ 71,120
2………...... 320,400 0.20 64,080
3………...... 317,000 0.20 63,400
* Take only enough depreciation in Year 5 to reduce book
Year
Beginning
Book Value
Annual
Depreciation
(40% of
Book Value)
Accumulated
Depreciation
at the End of
the Year
Ending Book Value
($324,000 Cost less
Accumulated
Depreciation)
1…......... $324,000 $129,600 $129,600 $194,400
2…......... 194,400 77,760 207,360 116,640
Problem 8-3B (45 minutes)
Part 1
Land
Building
B
Building
C
Land
Improve-
ments B
Land
Improve-
ments C
Purchase price*..........$ 868,000 $527,000 $155,000
Demolition……..…........ 122,000
Land grading……......... 174,500
Allocation of
purchase price
Appraised
Value
Percent
of Total
Apportioned
Cost
Land……….……..…............…...... $ 795,200 56% $ 868,000
Part 2
2015
Jan. 1 Land………………………………………………….………..…. 1,164,500
Building B…………………………………..………………..… 527,000
Building C…………………………………..………………..… 1,458,000
Part 3
2015
Dec. 31 Depreciation Expense—Building B………………….….…….…….
…………………………………………………….…………………………………
…………………………………………………….…………………………………
28,500
31 Depreciation Expense—Building C……….…….….......60,000
Accumulated Depreciation—Building C………..… 60,000
31 Depreciation Expense–Land Improvements B..….…
…………………………………………………….………………….….
31,000
31 Depreciation Expense–Land Improvements C….…..
…………………………………………………….………………….….
10,350
Problem 8-4B (50 minutes)
2014
Jan. 3 Equipment……..………………………………….………..….…... 1,850
Cash………………………………………………………………. 1,850
To record betterment of van.
Dec. 31 Depreciation Expense—Equipment……………………….5,124*
Accumulated Depreciation—Equipment…..……... 5,124
To record depreciation.
*2014 depreciation after January 3rd betterment
Total original cost……………………………………………………….…..$27,670
2015
May 10 Repairs Expense—Equipment…………….…….….……... 800
Cash………………………………………………………………. 800
To record ordinary repair on van.
Dec. 31 Depreciation Expense—Equipment………………………. 3,760
Accumulated Depreciation—Equipment…..……... 3,760
To record depreciation.
*2015 depreciation after 1/1 extraordinary repair
Total cost ($29,520 + $2,064)…………………………………………………………………..$31,584
Problem 8-5B (40 minutes)
2014
Jan. 1 Machinery…………..……………….………………….…………...114,270
Dec. 31 Depreciation Expense—Machinery..….….…….….…….17,425
Accumulated Depreciation—Machinery…………… 17,425
To record depreciation [($114,270-$9,720)/6].
2015
*2015 depreciation:
Total cost…………………………………..………………………....…………$114,270
Less accumulated depreciation (from 2014)………..……..……... 17,425
Book value…………………………………..…………………………………..96,845
2016
Dec. 31 Depreciation Expense—Machinery…..….…….….……..27,500
Accumulated Depreciation—Machinery…………… 27,500
To record depreciation.
Dec. 31 Cash…………………………………………….……………………... 25,240
**Accumulated depreciation on machine at 12/31/2016:
2014………………………………………..…………………………….. $ 17,425
2015………………………………………..…………………………….. 27,500
2016………………………………………..…………………………….. 27,500
Problem 8-6B (20 minutes)
To record machinery costs.
Jan. 4 Machinery………………………….…….…….…….….…….… 4,600
Cash……………………………………….…….…….….….. 4,600
To record machinery costs.
2. a. First year
Dec. 31 Depreciation Expense—Machinery..….…….….…….....20,000
Accumulated Depreciation—Machinery…………… 20,000
To record depreciation [($158,110-$18,110)/7 =
$20,000].
b. Sixth year
3. Accumulated depreciation at the date of disposal
a. Sold for $28,000 cash
Dec. 31 Cash………………………………..…………………..……………...28,000
Loss on Sale of Machinery…………….………………….….10,110
Accumulated Depreciation—Machinery….................120,000
Machinery……..……………………………………………….. 158,110
b. Sold for $52,000 cash
Dec. 31 Cash………………………………..…………………..……………...52,000
Accumulated Depreciation—Machinery….................120,000
Machinery……..……………………………………………….. 158,110
Gain on Sale of Machinery………..…….….….…….… 13,890
Problem 8-7B (20 minutes)
a.
Feb. 19 Mineral Deposit…………..………………………………………..5,400,000
Cash………………………………………………………………. 5,400,000
To record purchase of mineral deposit.
b.
Mar. 21 Machinery……….…………………………………..……………….400,000
Cash………………………………………………………………. 400,000
To record costs of machinery.
c.
Dec. 31 Depletion Expense—Mineral Deposit………………….…342,900
d.
Dec. 31 Depreciation Expense—Machinery..….…….….…….....25,400
Analysis Component
Similarities—Amortization, depletion, and depreciation are similar in that
Differences—They are different in that they apply to different types of long–