• The Coca-Cola Company is the world’s largest non-alcoholic beverage company.
• The Coca-Cola Company sells over 3,300 beverages including Hi-C, Fruitopia,
Dasani water, Sprite, Minute Maid, and Powerade.
• Coca-Cola-Zero, introduced in 2005, was one of the most successful new product launches in
the company’s history.
• In 2009, the Company generated $8.2 billion in cash from operations, up 8 percent
from 2008.
• The company employs over 92,000 people world wide.
1. If the useful life can be more closely related to units of service rather than to age of the asset.
3. General decline in economic activity; decreasing demand for product associated with the asset; natural
4. A motor home being used temporarily as an office is not real property.
6. All of the costs are capitalized as part of the land cost.
8. Personal property: assets that can be readily moved (machinery, equipment, vehicles).
10. Declining balance
12. Depletion
13. Compare the book value of the asset traded in with the true trade-in allowance given by the other
party.
value is discounted value of estimated future net cash flows to be derived from the asset’s use.
Fast Facts
Managerial Implications: Thinking Critically
Discussion Questions
CHAPTER 18
PROPERTY, PLANT, AND EQUIPMEN
T
Chapter Opener: Thinking Critically
The $1 billion investment will pay off in increased sales and an edge over competitors who do not have the
financial strength to expand their global presence. The Coca Cola Company’s expectation is that increased sales
in an emerging new market will exceed the investment.
The method of depreciation used determines the timing of the amount that is charged to expense. This affects the
book value shown on the balance sheet and the net income shown on the income statement.
Discussion Questions (continued)
14. To be recorded an intangible asset, the right must have been obtained for consideration and must
16. Research costs are charged to expense when they are incurred because there is no
certainty that the costs will result in increased value.
17. The first classification is an intangible that can be determined to provide benefits for a specified
18. Cost of an intangible in the first category is amortized over its estimated useful life. An intangible
20. Debit Depreciation Expense—Trucks; credit Accumulated Depreciation— Trucks
21. Compute the sum of the digits of each year of life (1 + 2 + 3 + 4 + 5 + 6 = 21.) This is the
22. The MACRS method would not be acceptable under GAAP because it does not fairly reflect
cost and benefit.
23. Straight-line depreciation will yield higher depreciation expense in the later years of an asset’s life
24. Are projected net cash flows from using the asset less than the book value of the asset?
EXERCISE 18.1
Land Warehouse
Purchase price of land $300,000
EXERCISE 18.2
Cost of new machine:
Invoice price $180,000
EXERCISE 18.3
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PAGE
EXERCISE 18.4
Year Acquisition Cost Salvage Value Useful Life Depreciation
Accumulated
Depreciation
Year
Beginning
Book Value Rate Depreciation
Accumulated
Depreciation
EXERCISE 18.5
STRAIGHT-LINE METHOD
DOUBLE-DECLINING-BALANCE METHOD
EXERCISE 18.6
1. Lightweight trucks are included in the “5-year class” for MACRS purposes.
EXERCISE 18.7
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REF.
EXERCISE 18.8
Depreciation on old asset = ($900,000 − $90,000) ÷ 8 = $101,250 per year
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DATE DESCRIPTION DEBIT CREDIT
PAGE
EXERCISE 18.8 (continued)
PAGE
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REF.
1 2013 1
14 Trade-in old equipment for new equipment 14
EXERCISE 18.9
1. No gain or loss is recognized for tax purposes on a trade-in
2. For tax purposes, the basis of the new asset acquired by trade-in is
the sum of the basis of the old asset traded-in and the amount of the
boot (cash) given:
EXERCISE 18.10
Cost depletion = (Cost of natural resource ÷ total estimated units of the resource) =
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DATE DESCRIPTION DEBIT CREDIT
EXERCISE 18.11
a. Yes. Given the facts presented it seems almost certain that the asset is impaired and therefore
EXERCISE 18.12
1. Goodwill is an asset with a life not limited by contract. Intangibles without limited lives, such as
goodwill, brand names, and trademarks are assessed periodically for impairment and are written
2. The remaining cost of patents, franchises, and other intangible assets with useful lives limited by
PROBLEM 18.1A
1. Manufacturing Plant
2. Land
Purchase of land $2,400,000
Demolition of building $16,000
3. Land Improvements
Paving of sidewalks and curbs $125,000
PROBLEM 18.2A
Year
Acquisition
Cost
Salvage
Value
Useful
Life
Annual
Depreciation
Accumulated
Depreciation
STRAIGHT-LINE METHOD
PROBLEM 18.2A (continued)
Year Fraction
Cost Less
Salvage
Annual
Depreciation
Accumulated
Depreciation
Year
Beginning
Book Value Rate
Annual
Depreciation
Accumulated
Depreciation
PROBLEM 18.3A
Year
Acquisition
Cost
Salvage
Value Useful Life
Annual
Depreciation
Accumulated
Depreciation
SUM-OF-THE-YEARS’-DIGITS METHOD
DOUBLE-DECLINING-BALANCE METHOD
STRAIGHT-LINE METHOD
PROBLEM 18.3A (continued)
Year
Acquisition
Cost
Salvage
Value
Total Expected Units
of Production
Actual Units
of Production Cost per unit
Annual
Depreciation
Accumulated
Depreciation
of $540,000 will be depreciated over the life of the asset regardless of the method used.
PROBLEM 18.4A
1. Depreciation of computer:
2. MACRS recovery of computer:
3. Depreciation of van:
4. MACRS recovery of van:
2013—($65,000 × .20) = $13,000
UNITS-OF-PRODUCTION METHOD
PROBLEM 18.5A
PAGE
POST.
REF.
1 2013 1
12 Traded in old printer on new printer 12
13 13
14 July 19 Depreciation Expense—Vehicles 4 1 1 3 00 14
15 Accumulated Depreciation—Vehicles 411300 15
16 To record depreciation for 7 months on 16
27 Accumulated Depreciation—Vehicles 533300 27
28 To record depreciation for eight months 28
29 on truck traded-in for new truck 29
30 30
31 Case A: Truck is sold for $19,000 31
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DATE DESCRIPTION DEBIT CREDIT
PROBLEM 18.5A (continued)
PAGE
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REF.
38 Case B: Truck is sold for $16,000 38
39 39
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DATE DESCRIPTION DEBIT CREDIT
PROBLEM 18.6A
PAGE
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REF.
1 2013 1
12 2014 12
13 Apr. 3 Depreciation Expense—Machinery 1 0 0 00 13
14 Accumulated Depreciation—Machinery 1 0 0 00 14
15 Three months’ depreciation on stolen machine 15
16 16
27 2015 27
28 Sept. 18 Depreciation Expense—Machinery 3 0 0 00 28
29 Accumulated Depreciation—Machinery 3 0 0 00 29
30 Nine months’ depreciation on machine 2 30
31 31
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DATE DESCRIPTION DEBIT CREDIT
PROBLEM 18.6A (continued)
PAGE
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REF.
1 2015 1
12 4 Machinery (No. 5) 390000 12
13 Accumulated Depreciation—Machinery (No. 3) 136700 13
14 Gain on Trade In of Machinery 2 6 7 00 14
15 Machinery (Old) 300000 15
16 Cash 200000 16
27 Machinery (Old) 300000 27
28 Cash 295000 28
29 Traded in machine 4 on new machine, at a loss 29
30 30
31 Dec. 31 Depreciation Expense—Machinery 50972 31
DEBIT CREDIT
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DATE DESCRIPTION
PROBLEM 18.7A
1. Depletion for financial accounting purposes.
2013: $656,000 ÷ 820,000 tons = $0.80 per ton
2. a. Percentage depletion in 2013 would be $164,000.
Sales $2,050,000 × 0.08 = $164,000
b. Cost depletion for tax purposes in 2013 would be same as for financial accounting, $164,000.
c. Cost depletion for tax purposes in 2014 would be $25,231
Capitalized costs of minerals $656,000
Less Depletion deducted in 2013 164,000
PROBLEM 18.8A
1. The steps leading to recording impairment have been taken. (1) There have been indications
that impairment may exist. (2) An examination has been made that shows that impairment does
3. The necessary entry would be to debit Impairment of Building or some similar account and
credit the Building account directly for $4.8 million.
4. Once impairment of property, plant and equipment has been recorded, the book value should
not be restored merely because value has increased. To do so would give rise to recognition
of unrealized income.
PROBLEM 18.9A
PAGE
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REF.
1 2013 (1) 1
12 Sept. 22 Computer Software 24000000 12
13 Cash 24000000 13
14 To record purchase of computer program with 14
15 estimated useful life of five years 15
16 16
27 31 Amortization of Patents 3200000 27
28 Patents 3200000 28
29 To record amortization of patent purchased on 29
30 July 5 ($640,000 ÷ 10 × 6/12) 30
31 31
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DATE DESCRIPTION DEBIT CREDIT