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
First year’s depreciation = $43,500 x 20% = $8,700
Exercise 10-7 (15 minutes)
Straight-line depreciation: ($154,000 – $25,000) / 4 years = $32,250 per year
Year Annual Depreciation Year-End Book Value
2015….…. $ 32,250 $121,750
Exercise 10-8 (20 minutes)
Double-declining-balance depreciation
Depreciation rate: 100% / 4 years = 25% x 2 = 50%
Year
Beginning-Year
Book Value
Depreciation
Rate
Annual
Depreciation
Year-End
Book Value
2015....... $154,000 50% $ 77,000 $77,000
2016....... 77,000 50 38,500 38,500
* Do not depreciate more than $13,500 in the third year since the
salvage value is not subject to depreciation.
10-581
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
Year 3……… 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
Year 2……….…... 143,040 57,216 152,576 85,824
** rounded
***Must not use $20,598; instead take only enough depreciation in Year 4 to reduce book value
to the $43,600 salvage value.
10-582
Chapter 10 – Plant Assets, Natural Resources, and Intangibles
Exercise 10-11 (10 minutes)
Straight-line depreciation for 2014
[($280,000 – $40,000) / 5 years] x 9/12 = $36,000
Exercise 10-12 (15 minutes)
Double-declining-balance depreciation for 2014 and 2015:
Rate = (100% / 5 years) x 2 = 40%
Book value at January 1, 2015 ($280,000 – $84,000)...…. $196,000
Depreciation for 2015 ($196,000 x 40%)……………………... $ 78,400
Alternate calculation
Exercise 10-13 (15 minutes)
1. Original cost of machine………………………………….………..…..…..$ 23,860
Less two years’ accumulated depreciation
[($23,860 – $2,400) / 4 years] x 2 years……………..………..…..… (10,730)
Book value at end of second year…………………………….………...$ 13,130
2. Book value at end of second year…………………………….………...$ 13,130
10-583
Chapter 10 – Plant Assets, Natural Resources, and Intangibles
Exercise 10-14 (15 minutes)
1. Equipment……………………………………………………………. 22,000
Cash………………………………………………………………. 22,000
To record betterment.
Exercise 10-15 (25 minutes)
1. Annual depreciation = $572,000 / 20 years = $28,600 per year
2. Entry to record the extraordinary repairs
3. Cost of building
Before repairs…………………………………………………..…....$572,000
4. Revised book value of building (part 3)…………….……….. $211,350
New estimate of useful life (20 – 15 + 5)…..………..…..…... 10 years
10-584
Chapter 10 – Plant Assets, Natural Resources, and Intangibles
Exercise 10-16 (20 minutes)
1. Disposed at no value
Jan. 3 Loss on Disposal of Milling Machine……………………..68,000
2. Sold for $35,000 cash
Jan. 3 Cash………………………………………………………….…..…….35,000
Loss on Sale of Milling Machine………………..…..…..…33,000
3. Sold for $68,000 cash
Jan. 3 Cash………………………………………………………….…..…….68,000
Accumulated Depreciation—Milling Machine…..…….182,000
Milling Machine………………………………..………..….... 250,000
To record cash sale of milling machine.
4. Sold for $80,000 cash
Jan. 3 Cash………………………………………………………….…..…….80,000
10-585
Chapter 10 – Plant Assets, Natural Resources, and Intangibles
Exercise 10-17 (25 minutes)
2019
July 1 Depreciation Expense……………….………..…..…..….. 7,500
1. Sold for $45,500 cash
July 1 Cash……………………………………………………………..……..45,500
Accumulated Depreciation—Machinery…………..…….67,500
2. Destroyed by fire with $25,000 cash insurance settlement
July 1 Cash………………………………………………………….…..…….25,000
Loss from Fire…………………………………………………..….12,500
Exercise 10-18 (10 minutes)
Dec. 31 Depletion Expense—Mineral Deposit………..………..…405,528
Accumulated Depletion—Mineral Deposit……….… 405,528
To record depletion [$3,721,000/1,525,000 tons =
$2.44 per ton; 166,200 tons x $2.44 = $405,528].
10-586
Chapter 10 – Plant Assets, Natural Resources, and Intangibles
Exercise 10-19 (10 minutes)
Cash…………………………………………..…..………..…..…
418,000
00
To record purchase of copyright.
Dec. 31 Amortization Expense—Copyright…..………..…..……..41,800
Accumulated Amortization—Copyright…..………... 41,800
To record amortization of copyright
[$418,000 / 10 years].
Exercise 10-20 (10 minutes)
1. Goodwill = $2,500,000 – $1,800,000 = $700,000
Exercise 10-21 (15 minutes)
Exercise 10-22 (15 minutes)
Total asset turnover for 2014 = = 3.36
10-587
$5,856,480
($1,800,000 + $1,686,000)/2
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
Alternatively, answers can be taken from the following journal entry:
Tractor (new)*…………………………………………………………….…..…. 112,000
Loss on Exchange of Assets….……….………..….…….……….…….. 14,500
Exercise 10-24A (25 minutes)
Note: Book value of Machine equals $44,000 – $24,625 = $19,375
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
Accumulated Depreciation—Machinery (old)………....24,625
3. $15,000 trade-in allowance is less than book value (yielding a loss)
Jan. 2 Machinery (new)……………………..…..…..………..…..…….60,200
Loss on Exchange of Machinery…………………………...4,375
10-588
Chapter 10 – Plant Assets, Natural Resources, and Intangibles
Exercise 10-25 (20 minutes)
(Amounts for this exercise are in euros millions)
1. Depreciation expense………………….…..………..…..………
2. Property, plant and equipment……………………..…..…....
…………………………………………………………….……….... 11,061
3. Cash……………………………………………………………………... 700
Loss on disposal of property, plant and equipment... 500
4. Volkswagen would decrease its property, plant and equipment account
10-589
Chapter 10 – Plant Assets, Natural Resources, and Intangibles
PROBLEM SET A
Problem 10-1A (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
Part 2
Year 2015 straight-line depreciation on building
Part 3
Year 2015 double-declining-balance depreciation on land improvements
(100% / 5 years) x 2 = 40% rate
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
10-590
10-591