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Chapter 10 - Plant Assets, Natural Resources, and Intangibles
Problem 10-2A (25 minutes)
Year Straight-LineaUnits-of-Productionb
Double-Declining-
Balancec
1...................... $ 59,375 $110,000 $128,750
2...................... 59,375 62,300 64,375
aStraight- line:
Cost per year = $237,500/4 years = $59,375 per year
bUnits-of-production:
Cost per unit = $237,500/475,000 units = $0.50 per unit
Year Units Unit Cost Depreciation
1................ 220,000 $0.50 $110,000
2................ 124,600 0.50 62,300
*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
Total... $237 ,500
* rounded
**Take only enough depreciation in Year 4 to reduce book value to
the asset’s $20,000 salvage value.
10-581
Education.
Chapter 10 - Plant Assets, Natural Resources, and Intangibles
Problem 10-3A (45 minutes)
Part 1
Land
Building
2
Building
3
Land
Improve-
ments 1
Land
Improvements
2
New building........................ $2,202,000
New improvements.............
_________ _______ _________ _______ $164,000
Totals..................................
$2,115,800 $598,000 $2,202,000 $390,000 $164,000
*Allocation of purchase price
Appraised
Value
Percent
of Total
Apportioned
Cost**
**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
Accumulated Depreciation—Building 2................. 26,900
To record depreciation [($598,000 - $60,000)/20].
31 Depreciation Expense—Land Improv. 2.......................8,200
Accum. Depreciation—Land Improv. 2................... 8,200
10-582
10-583
Chapter 10 - Plant Assets, Natural Resources, and Intangibles
Problem 10-4A (50 minutes)
2014
Jan. 1 Equipment .................................................................300,600
Cash..................................................................... 300,600
To record loader costs ($287,600 +$11,500 +$1,500).
*2014 depreciation after January 3rd betterment
Total original cost.................................................................... $300,600
Plus cost of betterment........................................................... 4,800
Revised cost of equipment...................................................... 305,400
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
Book value.........................................................................................................239,950
10-584
Chapter 10 - Plant Assets, Natural Resources, and Intangibles
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
Less revised salvage value............................................................................... 2,400
Remaining cost to be depreciated....................................................................$ 15,600
2016
Dec. 31 Depreciation Expense—Trucks................................... 5,200
Accumulated Depreciation—Trucks..................... 5,200
To record annual depreciation.
Dec. 31 Cash............................................................................... 5,300
**Accumulated depreciation on truck at 12/31/2016
2014.................................................................................. $ 4,000
2015.................................................................................. 5,200
2016.................................................................................. 5,200
Total................................................................................. $14,400
***Book value of truck at 12/31/2016
10-585
Chapter 10 - Plant Assets, Natural Resources, and Intangibles
Problem 10-6A (20 minutes)
1.
Jan. 2 Machinery................................................................. 178,000
Cash.................................................................... 178,000
To record machinery purchase.
2. a. First year
Dec. 31 Depreciation Expense—Machinery............................28,000
Accumulated Depreciation—Machinery............... 28,000
To record depreciation [($182,000 - $14,000)/6].
b. Fifth year
3. Accumulated depreciation at the date of disposal
Five years' depreciation (5 x $28,000)..........................$140,000
Book value at the date of disposal
Original total cost........................................................... $182,000
Accumulated depreciation............................................ (140,000)
Book value...................................................................... $ 42,000
c. Destroyed in fire and collected $30,000 cash from insurance co.
Dec. 31 Cash...............................................................................30,000
10-586
Chapter 10 - Plant Assets, Natural Resources, and Intangibles
Accumulated Depreciation—Machinery....................140,000
Loss from Fire..............................................................12,000
Machinery................................................................. 182,000
10-587
Chapter 10 - Plant Assets, Natural Resources, and Intangibles
Problem 10-7A (20 minutes)
a.
July 23 Mineral Deposit.............................................................4,715,000
Cash......................................................................... 4,715,000
To record purchase of mineral deposit.
b.
d.
Dec. 31 Depreciation Expense—Machinery............................38,400
Accum. Depreciation—Machinery........................ 38,400
To record depreciation [$410,000/
5,125,000 tons = $0.08 per ton.
480,000 tons x $0.08 = $38,400].
Analysis Component
Similarities—Amortization, depletion, and depreciation are similar in that
they are all methods of allocating costs of long-term assets to the periods
that benefit from their use.
10-588
Chapter 10 - Plant Assets, Natural Resources, and Intangibles
Problem 10-8A (20 minutes)
1.
2015 (a)
June 25 Leasehold......................................................................200,000
Cash......................................................................... 200,000
To record payment for sublease.
(b)
To record costs of leasehold improvements.
2.
2015 (a)
Dec. 31 Rent Expense................................................................10,000
Accumulated Amortization—Leasehold............... 10,000
To record leasehold amortization ($200,000/10 x
6/12).
(b)
Dec. 31 Amortization Expense—Leasehold Improvements............6,500
PROBLEM SET B
Problem 10-1B (50 minutes)
Part 1
Estimated
Market Value
Percent
of Total
Apportioned
Cost
10-589
Chapter 10 - Plant Assets, Natural Resources, and Intangibles
Land................................. 427,200 24 432,000
2015
Jan. 1 Buildings.........................................................................900,000
Land.................................................................................432,000
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 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
10-590
