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Chapter 10 - Plant Assets, Natural Resources, and Intangibles
Exercise 10-3 (20 minutes)
Purchase price........................................................... $375,280
Allocation of total cost
Appraised
Value
Percent
of Total
Applying %
to Cost
Apportioned
Cost
Land..............................$157,040 40% $395,380 x .40 $158,152
Journal entry
Land........................................................................ 158,152
Land Improvements............................................... 59,307
Exercise 10-4 (10 minutes)
Exercise 10-5 (10 minutes)
Units-of-production
10-581
Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill
Education.
Chapter 10 - Plant Assets, Natural Resources, and Intangibles
Exercise 10-6 (15 minutes)
Double-declining-balance
Double-declining-balance rate = (100% / 10 years) x 2 = 20% per year
Exercise 10-7 (15 minutes)
Year Annual Depreciation Year-End Book Value
2015........ $ 32,250 $121,750
Exercise 10-8 (20 minutes)
Double-declining-balance depreciation
Year
Beginning-Year
Book Value
Depreciation
Rate
Annual
Depreciation
Year-End
Book Value
2015....... $154,000 50% $ 77,000 $77,000
10-582
Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill
Education.
Chapter 10 - Plant Assets, Natural Resources, and Intangibles
Exercise 10-9 (30 minutes)
Straight-line depreciation
Income
before
Depreciation
Depreciation
Expense*
Net
Income
Year 1......... $ 88,500 $ 38,960 $ 49,540
Year 2......... 88,500 38,960 49,540
*($238,400 - $43,600) / 5 years = $38,960
Exercise 10-10 (30 minutes)
Double-declining-balance depreciation
Income
before
Depreciation
Depreciation
Expense*
Net
Income
Year 1........ $ 88,500 $ 95,360 $ (6,860)
Year 2......... 88,500 57,216 31,284
Supporting calculations for depreciation expense
*Note: (100% / 5 years) x 2 = 40% depreciation rate
Beginning
Book
Value
Annual
Depreciation
(40% of
Book Value)
Accumulated
Depreciation at
the End of the
Year
Ending Book Value
($238,400 Cost Less
Accumulated
Depreciation)
Year 1................ $238,400 $ 95,360 $ 95,360 $143,040
** rounded
***Must not use $20,598; instead take only enough depreciation in Year 4 to reduce book value
to the $43,600 salvage value.
10-583
Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill
Education.
Chapter 10 - Plant Assets, Natural Resources, and Intangibles
Exercise 10-11 (10 minutes)
Straight-line depreciation for 2014
Straight-line depreciation for 2015
Exercise 10-12 (15 minutes)
Double-declining-balance depreciation for 2014 and 2015:
Alternate calculation
Exercise 10-13 (15 minutes)
1. Original cost of machine...........................................................$ 23,860
Less two years' accumulated depreciation
10-584
Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill
Education.
Chapter 10 - Plant Assets, Natural Resources, and Intangibles
Exercise 10-14 (15 minutes)
To record betterment.
To record ordinary repairs.
To record extraordinary repairs.
Exercise 10-15 (25 minutes)
Age of the building = Accumulated depreciation / Annual depreciation
2. Entry to record the extraordinary repairs
To record extraordinary repairs.
3. Cost of building
Before repairs................................................................$572,000
Journal entry
To record depreciation.
10-585
Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill
Education.
Chapter 10 - Plant Assets, Natural Resources, and Intangibles
Exercise 10-16 (20 minutes)
1. Disposed at no value
To record disposal of milling machine.
2. Sold for $35,000 cash
To record cash sale of milling machine.
3. Sold for $68,000 cash
To record cash sale of milling machine.
4. Sold for $80,000 cash
Jan. 3 Cash.............................................................................80,000
To record cash sale of milling machine.
10-586
Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill
Education.
Chapter 10 - Plant Assets, Natural Resources, and Intangibles
Exercise 10-17 (25 minutes)
2019
To record one-half year depreciation.*
1. Sold for $45,500 cash
To record sale of machinery.*
*Total accumulated depreciation at date of disposal:
Four years 2015-2018 (4 x $15,000)......... $60,000
2. Destroyed by fire with $25,000 cash insurance settlement
July 1 Cash.............................................................................25,000
To record disposal of machinery from fire.
Exercise 10-18 (10 minutes)
10-587
Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill
Education.
Chapter 10 - Plant Assets, Natural Resources, and Intangibles
Exercise 10-19 (10 minutes)
Cash........................................................................
418,000
00
To record purchase of copyright.
To record amortization of copyright
[$418,000 / 10 years].
Exercise 10-20 (10 minutes)
1. Goodwill = $2,500,000 - $1,800,000 = $700,000
2. Goodwill is not amortized. Instead, Robinson must test the value of the
Goodwill each year, and if the value is impaired, it must be written down.
3. Goodwill is only recorded when it is purchased. Goodwill is not
recorded by the company that has created it.
Exercise 10-21 (15 minutes)
1. $7,358 million cash for property and equipment
2. $2,781 million for
depreciation and amortization
3. $13,679 million cash used in investing activities
Exercise 10-22 (15 minutes)
Analysis comments. Based on these calculations, Look turned its assets over
10-588
Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill
Education.
Chapter 10 - Plant Assets, Natural Resources, and Intangibles
Exercise 10-23A (15 minutes)
1. Book value of the old tractor ($96,000 - $52,500)..........................$ 43,500
2. Loss on the exchange
3. Debit to new Tractor account
Alternatively, answers can be taken from the following journal entry:
Tractor (new)*.................................................................................. 112,000
Exercise 10-24A (25 minutes)
1. Sold for $18,250 cash
Jan. 2 Cash.............................................................................18,250
To record cash sale of machine.
2. $25,000 trade-in allowance exceeds book value; but no gain is
recognized on an asset exchange that lacks commercial substance
($5,625 gain is ‘buried’ in the cost of the new machinery)
Jan. 2 Machinery (new)*........................................................54,575
To record asset exchange.
3. $15,000 trade-in allowance is less than book value (yielding a loss)
Jan. 2 Machinery (new)..........................................................60,200
10-589
Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill
Education.
Chapter 10 - Plant Assets, Natural Resources, and Intangibles
10-590
Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill
Education.
