Exercise 10-25 (20 minutes)
(Amounts for this exercise are in euros millions)
1. Depreciation expense……………………………………………
……………………………………………………………………… 6,689
2. Property, plant and equipment……………………………….
……………………………………………………………………… 11,061
3. Cash……………………………………………………………………. 700
4. Volkswagen would decrease its property, plant and equipment account
by €118 at December 31, 2013, for its 2013 total impairments.
PROBLEM SET A
Problem 10-1A (50 minutes)
Part 1
Estimated
Market Value
Percent
of Total
Apportioned
Cost
Building……………………. $508,800 53% $477,000
2015
Jan. 1 Building……………………………………………………………….477,000
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 lower the total amount of taxes paid over
the asset’s life. Instead, it defers or postpones taxes to the later years of an
less in later years. [Note: From a present value perspective, there is a tax
savings from use of accelerated depreciation. The company gets to use the
tax deferred amounts for investment purposes until they are due.]
Problem 10-2A (25 minutes)
Cost of machine……………………………………………………..$257,500
Year Straight-LineaUnits-of-Productionb
Double-Declining-
Balancec
1…………………. $ 59,375 $110,000 $128,750
aStraight- line:
bUnits-of-production:
Year Units Unit Cost Depreciation
1…………….. 220,000 $0.50 $110,000
*Take only enough depreciation in Year 4 to reduce book
value to the asset’s $20,000 salvage value.
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
* rounded
Part 1
Land
Building
2
Building
3
Land
Improve-
ments 1
Land
Improvements
2
Purchase price*………………..
$1,612,000 $598,000 $390,000
*Allocation of purchase price
Appraised
Value
Percent
of Total
Apportioned
Cost**
Land…………………………………….. $1,736,000 62% $1,612,000
**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
Part 3
2015
Dec. 31 Depreciation Expense—Building 2…………………………26,900
31 Depreciation Expense—Building 3…………………………72,400
31 Depreciation Expense—Land Improv. 1………………….32,500
Problem 10-4A (50 minutes)
2014
Jan. 1 Equipment ………………………………………………………300,600
Cash………………………………………………………….. 300,600
To record loader costs ($287,600 +$11,500 +$1,500).
To record depreciation.
*2014 depreciation after January 3rd betterment
Total original cost…………………………………………………………….. $300,600
Plus cost of betterment……………………………………………………. 4,800
2015
Jan. 1 Equipment………………………………………………………….5,400
Cash…………………………………………………………….. 5,400
To record extraordinary repair on loader.
To record depreciation.
*2015 depreciation after January 1st extraordinary repair
Total cost ($305,400 + $5,400)…………………………………………………………………..$310,800
Less accumulated depreciation ………………………………………………………………. 70,850
Problem 10-5A (40 minutes)
2014
Jan. 1 Trucks………………………………………………………………..22,000
Cash…………………………………………………………….. 22,000
To record cost of truck ($20,515 + $1,485).
To record depreciation.
*2015 depreciation
Total cost…………………………………………………………………………………………………$ 22,000
Less accumulated depreciation (from 2014)…………………………………………….. 4,000
Book value……………………………………………………………………………………………….18,000
2016
Dec. 31 Depreciation Expense—Trucks……………………………. 5,200
Accumulated Depreciation—Trucks……………….. 5,200
To record annual depreciation.
To record sale of truck.
**Accumulated depreciation on truck at 12/31/2016
2014…………………………………………………………………………$ 4,000
2015………………………………………………………………………… 5,200
Problem 10-6A (20 minutes)
1.
Jan. 2 Machinery……………………………………………………… 178,000
Cash………………………………………………………… 178,000
To record machinery purchase.
Jan. 3 Machinery……………………………………………………… 2,840
Cash………………………………………………………… 2,840
To record machinery costs.
To record machinery costs.
2. a. First year
b. Fifth year
Dec. 31 Depreciation Expense—Machinery……………………….28,000
Accumulated Depreciation—Machinery………….. 28,000
To record year’s depreciation.
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
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 10-7A (20 minutes)
a.
July 23 Mineral Deposit…………………………………………………..4,715,000
Cash…………………………………………………………….. 4,715,000
To record purchase of mineral deposit.
b.
To record costs of machinery.
c.
Dec. 31 Depletion Expense—Mineral Deposit……………………441,600
d.
Dec. 31 Depreciation Expense—Machinery……………………….38,400
Analysis Component
Similarities—Amortization, depletion, and depreciation are similar in that
Differences—They are different in that they apply to different types of
long-term assets: amortization applies to intangible assets with (definite)
Problem 10-8A (20 minutes)
1.
2015 (a)
June 25 Leasehold…………………………………………………………..200,000
Cash…………………………………………………………….. 200,000
To record payment for sublease.
(b)
To record prepaid annual lease rental.
(c)
To record costs of leasehold improvements.
2.
2015 (a)
Dec. 31 Rent Expense……………………………………………………..10,000
(b)
Dec. 31 Amortization Expense—Leasehold Improvements…………6,500
Accumulated Amortization—Leasehold
(c)
Dec. 31 Rent Expense……………………………………………………..40,000