PROBLEM 18.9A (continued)
PAGE
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REF.
37 31 Impairment of Intangibles—Goodwill 3000000 37
GENERAL JOURNAL 1
DATE DESCRIPTION DEBIT CREDIT
PROBLEM 18.1B
1. Land
Purchase of land $375,000
Demolition of building $30,000
Less salvage (17,000) 13,000
Attorney fees 9,000
2. Building
3. Land Improvements
Paving of sidewalks and curbs $90,000
PROBLEM 18.2B
Year
Acquisition
Cost
Salvage
Value Useful Life
Annual
Depreciation
Accumulated
Depreciation
STRAIGHT-LINE METHOD
PROBLEM 18.2B (continued)
Year Fraction
Cost Less
Salvage
Annual
Depreciation
Accumulated
Depreciation
Year
Beginning
Book Value Rate
Annual
Depreciation
Accumulated
Depreciation
PROBLEM 18.3B
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 18.3B (continued)
Year
Acquisition
Cost
Salvage
Value
Total Expected Units
of Production
Actual Unit
s
of Production
Cost per
unit
Annual
Depreciation
Accumulated
Depreciation
2013 $880,000 $80,000 3,200,000 320,000 $0.25 $80,000 $80,000
PROBLEM 18.4B
1. Depreciation of computer:
2. MACRS recovery of computer:
3. Depreciation of van:
4. MACRS recovery of van:
2013—($36,000 × .20) = $7,200
UNITS-OF-PRODUCTION METHOD
PROBLEM 18.5B
PAGE
POST.
REF.
1 2013 1
12 Traded in old copier on new copier 12
13 13
14 July 8 Depreciation Expense—Vehicles 280000 14
15 Accumulated Depreciation—Vehicles 28000015
16 To record depreciation for six months on 16
27 Accumulated Depreciation—Store Equipment 37500027
28 To record depreciation for nine months 28
29 on refrigeration unit sold 29
30 30
31 Case A: Unit is sold for $13,500 31
GENERAL JOURNAL 1
DATE DESCRIPTION DEBIT CREDIT
PROBLEM 18.5B (continued)
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POST.
REF.
38 Case B: Unit is sold for $10,200 38
39 23 Cash 1020000 39
GENERAL JOURNAL 1
DATE DESCRIPTION DEBIT CREDIT
PROBLEM 18.6B
PAGE
POST.
REF.
1 2013 1
12 2014 12
13 Mar. 31 Depreciation Expense—Machinery 45000 13
14 Accumulated Depreciation—Machinery 45000 14
15 Three months’ depreciation on destroyed machine 15
16 16
27 2015 27
28 Oct. 2 Depreciation Expense—Machinery 135000 28
29 Accumulated Depreciation—Machinery 135000 29
30 To record depreciation for nine months for 30
31 machine 2, which was sold 31
GENERAL JOURNAL
DATE DESCRIPTION DEBIT CREDIT
PROBLEM 18.6B (continued)
PAGE
POST.
REF.
1 2015 1
12 28 Machinery (No. 5) 880000 12
13 Accumulated Depreciation—Machinery 615000 13
14 Loss on Trade-In of Machinery 5 0 00 14
15 Machinery (No. 3) 900000 15
16 Cash 600000 16
27 Machinery (No. 4) 900000 27
28 Cash 720000 28
29 Traded in machine 4 for a new machine 29
30 30
31 Income Tax Method: 31
GENERAL JOURNAL
DATE DESCRIPTION DEBIT CREDIT
PROBLEM 18.7B
1. Depletion for financial accounting purposes.
2013: $900,000 ÷ 1,000,000 barrels = $.90 per barrel
2. a. Cost depletion for tax purposes in 2013 would be same as for financial accounting, $3,600.00
b. The company could deduct $3,600 of depletion on its 2013 tax return.
Cost depletion = $3,600 as computed above.
Percentage depletion in 2013 would be $800:
Sales $160,000 × 0.15 = $24,000,
e. $720,000 ($4,800,000 × .15) Percentage depletion can continue to be taken even though the total
amount of percentage depletion may be many times greater then the cost of the minerals.
PROBLEM 18.8B
1. The steps in assessing and measuring impairment have been taken: (1) There have been
indications that impairment may exist. (2) An examination has been made that shows that
3. The necessary entry would be to debit Impairment of Aircraft or some similar account and
Analyze: An examination should be made to determine whether the planes currently used are
PROBLEM 18.9B
PAGE
POST.
REF.
12013 (1) 1
12 Dec. 31 Research and Development Expenses 3,000 00000 12
13 Cash 3,000 00000 13
14 To record expenditures in R&D 14
15 activities for year 15
16 16
27 27
28 (3) 28
29 Note Goodwill is not amortized. No entry is required 29
30 if an assessment has been made that there 30
31 is no impairment of the balance in the account. 31
GENERAL JOURNAL 25
DATE DESCRIPTION DEBIT CREDIT
CRITICAL THINKING PROBLEM 18.1
1. There are no rigid requirements that a business use any specific depreciation method for financial
accounting purposes. The method used must be “generally acceptable.” The usual methods are
2. Depreciation for financial accounting purposes may (and usually does) differ materially from the
“cost recovery” deducted under the Internal Revenue’s MACRS cost recovery system, which is
used instead of the traditional depreciation methods. This is because financial accounting strives
to match costs of an asset with the revenues the asset generates, to the extent possible.
3. The entity will deduct smaller amounts of MACRS as the assets get older. This means that if all
other factors were constant, income taxes would get higher as the assets get older. The result
4. Essentially, management is responsible for the choice of depreciation methods. Usually the chief
accounting officer and the chief financial officer are the critical players. In the case of firms
using outside auditors, the auditors may also play a key role.
CRITICAL THINKING PROBLEM 18.2
PAGE
POST.
REF.
1 2014 (Instruction 1) 1
10 the straight-line depreciation 10
11 11
12 31 Depreciation Expense—Sidewalks and Parking 130000 12
13 Accumulated Depreciation—Sidewalks and Parking 130000 13
2. a. (Furniture and fixtures are in the MACRS 7-year cost recovery class.)
2014: MACRS cost recovery for 2014 = $72,000 × 14.29% = $10,289
3. There is strong indication that the asset may be impaired. A development (investigation for possible
contamination because of existence of an old dump site) and the decline in business may suggest that
GENERAL JOURNAL 25
DATE DESCRIPTION DEBIT CREDIT
CRITICAL THINKING PROBLEM 18.2 (continued)
4. No. Unit-of-output depreciation is appropriate only where the asset’s useful life is affected directly by
SOLUTIONS TO BUSINESS CONNECTIONS
Managerial Focus:
2. Locking assets securely, assigning ID numbers, assign responsibility of asset to a person.
3. Recording assets at historical cost makes it easy to track the assets. Historical costs must be kept
for many purposes, such as for federal income tax purposes.
Ethical Dilemma:
It is an ethical transaction and the $100,000 would be included as Goodwill for Mr. Lopez. As long
Financial Statement Analysis:
Teamwork:
If the team has selected a machine, units of production would be the best method with a small
salvage value. For a building, straight-line would be best with a larger salvage value. Doubling the
Internet Connection:
The MACRS percent column for each year of the asset should be identical to the textbook. The
Part A True-False
1. FALSE 11. FALSE
3. TRUE 13. FALSE
5. TRUE 15. FALSE
7. TRUE 17. TRUE
9. TRUE 19. FALSE
10. TRUE 20. FALSE
Part B Matching
1. i
3. g
5. f
7. j
9. e
Part C Exercise
1. Depreciation for 2013 = ($44,000 – $4,000) ÷ 8 years = $5,000
Depreciation for 2014 = ($44,000 – $4,000) ÷ 8 years = $5,000
SOLUTIONS TO PRACTICE TEST