11,000$
375
Book
Value
$800 $800 $11,200
DAVIDSON, DDS
(1) Straight-Line (nearest whole month):
Depreciation
Expense
Computation
$12,000 x 1/10 x 8/12
PROBLEM 9.3B
50 Minutes, Strong
a. Costs to be depreciated include:
Cost of furniture
Freight charges
Accumulated
Depreciation
Year
2015
Education.
b.
d.
1. Journal entry assuming that the furniture was sold for $780:
780
2,600
2. Journal entry assuming that the furniture was sold for $250:
250
2,600
Davidson may use the straight-line method in its financial statements to achieve the
least amount of depreciation expense in the early years of the furniture’s useful life.
PROBLEM 9.3B
DAVIDSON, DDS (concluded)
Cash
Accumulated Depreciation: Furniture
the end of 2018 ($5,530). Depreciation, however, is not a process of valuation. Thus,
the $5,530 book value is not an estimate of the furniture’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 $2,600.
Cash
Accumulated Depreciation: Furniture
Education.
25 Minutes, Medium
Jan 6 Loss on Disposal of Plant Assets 1,200
Accumulated Depreciation: Office Equipment 16
,
800
Office Equipment 18,000
Scrapped equipment; received no salvage value.
Mar 3 Cash 100
,
000
Notes Receivable 700
,
000
Accumulated De
p
reciation: Buildin
g
250
,
000
Land 50,000
p
To record trade-in of old truck on new; trade-in
allowance exceeded book value b
y
$8,000.
Sep 3 Office E
q
ui
p
ment
(
new com
p
uter
)
10,000
Loss on Trade-in of Plant Assets 2,600
Accumulated Depreciation: Office Equip. (old computer) 9,000
Office E
q
ui
p
ment
(
old com
p
uter
)
12,000
Cash 1,000
Notes Pa
y
able 8,600
Ac
q
uired new com
p
uter s
y
stem b
y
tradin
g
in old
com
p
uter,
p
a
y
in
g
p
art cash, and issuin
g
a 1-
y
ear,
10% note payable. Recognized loss equal to book value of
old computer ($3,000) minus trade-in allowance ($400).
b.
c.
Gains and losses on asset disposals do not affect gross profit because they are not part of
Unlike realized gains and losses on asset disposals, unrealized gains and losses on
PROBLEM 9.4B
a.
General Journal
BLAKE CONSTRUCTION
Education.
p
25 Minutes, Medium
a.
b.
d.
PROBLEM 9.5B
DELTA PRODUCTS CORPORATION
Intangible asset. A patent grants its owner the exclusive right to produce a particular
product. If the patent has significant cost, this cost is regarded as an intangible asset and
Operating expense. Although the training of employees probably has some benefit
extending beyond the current period, the number of periods benefited is highly uncertain.
Therefore, current accounting practice is to expense routine training costs.
Intangible asset. Goodwill represents the present value of future earnings in excess of
registration and legal costs) will be capitalized and amortized over the patent’s useful life,
limited to 20 years.
20 Minutes, Medium
250,000$
10
PROBLEM 9.6B
JELL STORES
a. Estimated goodwill associated with the purchase of Missy’s:
Actual average net income per year
Typical sales multiplier
Education.
30 Minutes, Medium
a.
PROBLEM 9.7B
HAYWOOD, INC.
Depreciation expense for the first two years under the three depreciation methods is
determined as follows:
Straight-line:
$24,000 – $6,000/6 years = $3,000 for each of the 1st and 2nd years
Double-declining balance (DDB):
Education.
30 Minutes, Medium
a.
$550,000
b.
c.
$670,000
(134,000) $536,000
Patent cost $80,000
(26,666)
Loss on the sale of the patent, presented in Rodgers’ Yr. 2 income statement, is calculated
as follows:
Accumulated amortization at time of
sale ($13,333 x 2)
Depreciation expense for Year 2:
Year 1:
Equipment
Depreciation expense for Year 3:
Plant and intangible asset sections of the balance sheet:
Less: Accumulated depreciation
($670,000 – $134,000) x 20% = $107,200
Amortization on the patent is calculated as follows (same for each year):
$80,000/6 years = $13,333
($670,000 – $134,000 – $107,200) x 20% = $85,760
PROBLEM 9.8B
RODGERS COMPAN
Y
Depreciation is calculated on the following amount:
Purchase price
20 Minutes, Strong
a.
b.
SOLUTIONS TO CRITICAL THINKING CASE
S
ARE USEFUL LIVES “FLEXIBLE”?
CASE 9.1
A
N ETHICS CAS
E
Lengthening the period over which assets are depreciated for financial statement purposes
will reduce the annual charges to depreciation expense. This will reduce expenses in the
Management is responsible for establishing the estimated useful lives of assets for purposes
of calculating depreciation and preparing financial statements. Those lives must be
consistent with the actual expected use of the assets. To arbitrarily lengthen the estimated
lives of assets for purposes of improving the company’s appearance in its financial
statements is not appropriate. If the financial statements are subject to audit by a Certified
a.
b.
CASE 9.2
DEPARTURES FROM GAA
P
—
A
RE THEY ETHICAL
?
20 Minutes, Strong
No. Miller Construction Co. is not a publicly owned company and has no external reporting
obligations other than payroll and tax returns. Therefore, it has no obligation—legal or
Showing plant assets at current market values is not in conformity with generally accepted
accounting principles (GAAP). GAAP requires these assets to be shown at cost, less any
accumulated depreciation (amortization or depletion), and less any write-downs for
impairment.
accepted accounting principles. (Disclosure of the departure from GAAP should be reflected
in the titles of the financial statements, as, for example: Balance Sheet (Reflecting Current
Market Values).
d.
useful lives to determine that they are reasonable.
Accelerated depreciation methods transfer the costs of plant assets to expense more quickly
than does the straight-line method. These larger charges to depreciation expense reduce the
amount of “taxable income” in the early years in the asset’s life and, therefore, reduce the
15 Minutes, Medium
a.
4. As a supervisor yourself, find ways to recognize individual and/or group
performance among your employees that do not encourage them to take steps that
may not be in their best long-term interests or those of the company.
CASE 9.
4
CAPITALIZATION VS. EXPENS
E
Employees, including yourself, may be applying the generally stated policies in a manner
that improves the appearance of your division’s performance. They (and you) may not
even realize this is being done, or it may be intentional. A consistent pattern of
capitalizing costs that should be expensed, or costs that are in a “gray area” between
those that should be capitalized and those that should be expensed can have a significant
frequency of transactions, and other factors.
ETHICS, FRAUD & CORPORATE GOVERNANC
E
Education.