12,000$
520
780
Book
Value
$600 $600 $15,400
800 1,400 14,600
800 2,200 13,800
800 3,000 13,000
Accumulated Book
Depreciation Value
$800 $800 $15,200
(2) 200% Declining-Balance (half-year convention):
$16,000 x 10% x 1/2
Year
2015
PROBLEM 9.3
A
50 Minutes, Strong
Accumulated
Depreciation
Depreciation
Expense
a. Costs to be depreciated include:
Cost of shelving
Freight charges
Sales taxes
16,000 x 1/20
16,000 x 1/20
2016
2017
2018
Computation
$16,000 x 1/20 x 9/12
Year
2015
HILLS HARDWAR
E
16,000 x 1/20
(1) Straight-Line Schedule (nearest whole month):
Depreciation
Expense
Computation
Education.
b.
d.
1. Journal entry assuming that the shelving was sold for $1,100:
1,100
8,600
9,000
700
To record sale of shelving for $1,100 cash.
2. Journal entry assuming that the shelving was sold for $175:
175
8,600
To record sale of shelving for $175 cash.
the end of 2018 ($11,081). Depreciation, however, is not a process of valuation.
Thus, the $11,081 book value is not an estimate of the shelving’s fair value at the
end of 2018.
A book value of $400 means that accumulated depreciation at the time of the
disposal must have been $8,600.
Cash
Accumulated Depreciation: Shelving
Accumulated Depreciation: Shelving
PROBLEM 9.3
A
HILLS HARDWARE (concluded
)
Hills Hardware may use the straight-line method in its financial statements to
achieve the least amount of depreciation expense in the early years of the shelving’s
Shelving
Gain on Disposal of Assets
Cash
Education.
25 Minutes, Medium
Feb 10 Loss on Dis
p
osal of Plant Assets 2,200
Accumulated De
p
reciation: Office E
q
ui
p
ment 21,800
Office E
q
ui
p
ment 24,000
Scrapped office equipment; received no salvage value.
A
pr
1 Cash 100,000
Notes Receivable 800,000
Accumulated De
p
reciation: Buildin
g
250,000
Land 50,000
Buildin
g
550,000
Gain on Sale of Plant Assets 550,000
Loss on Trade-in of Plant Assets 3,500
Accumulated Depreciation: Office Equip. (old computer) 11,000
Office E
q
ui
p
ment
(
old com
p
uter
)
15,000
Cash 1,500
Notes Pa
y
able 6,000
Acquired new computer system by trading in old
computer, paying part cash, and issuing a 1-year,
8% note payable. Recognized loss equal to book value of
old computer ($4,000) minus trade-in allowance ($500).
b.
Gains and losses on asset disposals do not affect gross profit because they are not part of
the cost of goods sold. Such gains and losses do, however, affect net income reported in a
PROBLEM 9.4
A
a.
General Journal
HITCHCOCK DEVELOPERS
Education.
p
25 Minutes, Medium
a.
b.
d.
PROBLEM 9.5
A
REDDICK CORPORATION
Intangible asset. A patent grants its owner the exclusive right to produce a particular
product. If the patent has significant cost, this cost is regarded as an intangible asset and
Operating expense. Although the training of employees probably has some benefit
extending beyond the current period, the number of periods benefited is highly uncertain.
Therefore, current accounting practice is to expense routine training costs.
Intangible asset. Goodwill represents the expected value of future earnings in excess of
what is considered normal. The goodwill associated with Reddick’s purchase of the vinyl
costs) will be capitalized as an asset and amortized over the estimated useful life, limited to
20 years.
Education.
20 Minutes, Medium
220,000$
9.25
PROBLEM 9.6
A
KIVI SERVICE STATIONS
a. Estimated goodwill associated with the purchase of Joe’s Garage:
Actual average net income per year
Typical sales multiplier
Education.
30 Minutes, Medium
a.
b. $20,000
(6,400) $13,600
c.
PROBLEM 9.7
A
THAXTON, INC.
Depreciation expense for the first two years under the three depreciation methods is
determined as follows:
Less: Accumulated depreciation
The units of output method is directly tied to the miles driven rather than calendar time
and, as a result, the exact amount of depreciation expense to be recognized each accounting
Units-of-Output:
Truck
Education.
30 Minutes, Medium
a.
$275,000
75,000
$350,000
b.
c.
$350,000
(52,500) $297,500
60,000*
$357,500
Less: Accumulated depreciation
Patent
Plant and intangible asset sections of the balance sheet:
Amortization on the patent is calculated as follows (same for each year):
$75,000/5 years = $15,000
PROBLEM 9.8
A
ROTHCHILD, INC.
Depreciation is calculated on the following amount:
Purchase price
Plus: Expenditures to prepare asset for use
Total plant and intangible assets
*$75,000 – $15,000 = $60,000
Year 2
Depreciation expense for Year 1:
Depreciation expense for Year 2:
Year 1:
Equipment
The declining balance rate at 150% of the straight-line is:
100%/10 years = 10%; 10% x 1.5 = 15%
Education.
a.
b. (1)
PROBLEM 9.1B
SMITHFIELD HOTEL
25 Minutes, Easy
The cost of plant and equipment includes all expenditures that are reasonable and necessary
in acquiring the asset and placing it in a position and condition for use in the operation of
the business.
The purchase price of $37,000 ($42,000 – $5,000) is part of the cost of the equipment.
The list price ($42,000) is not relevant, as this is not the actual price paid by Smithfield
Education.
c.
Equipment account:
37,000$
2,100
600
Dec 31 4,060
Accumulated Depreciation: Equipment 4,060
PROBLEM 9.1B
SMITHFIELD HOTEL (concluded)
Purchase price ($42,000 − 5,000)
Expenditures that should be debited to the
Sales ta
x
d.
Freight charges
Depreciation Expense: Equipment
Education.
Book
Year Value
2013 $17,000 $17,000 $163,000
2014 34,000 51,000 129,000
2016 20,736 148,896 31,104
2017 12,442 161,338 18,662
2018 8,662 170,000 10,000
Accumulated Book
Year Depreciation Value
2013 $27,000 $27,000 $153,000
2014 45,900 72,900 107,100
Depreciation
Expense
153,000 x 30%
Accumulated
Depreciation
$170,000 x 1/5 x 1/2
170,000 x 1/5
31,104 x 40%
51,840 x 40%
18,662 – 10,000
PROBLEM 9.2B
45 Minutes, Medium
R & R, INC.
a. (1) Straight-Line Schedule:
$180,000 x 30% x 1/2
Computation
Computation
(3) 150% Declining-Balance Schedule:
Depreciation
Expense
Education.
c.
$ 58,000
$ 26,896
3. 150% Declining-Balance:
52,479
$ 5,521
The reported gain or loss on the sale of an asset has no direct cash effects. The only direct cash
effect associated with the sale of this machine is the $58,000 received by R & R, Inc. from the
buyer.
Book value on 12/31/16
1. Straight-Line
Gain on disposal
Gain on disposal
PROBLEM 9.2B
R & R, INC. (concluded)
Computation of gains or losses upon disposal:
Cash proceeds
Education.