Chapter 08 – Reporting and Interpreting Property, Plant, and Equipment; Intangibles; and Natural Resources
Solutions Chapter 8 – Set B Exercises – Libby 8e
E8–1B.
Req. 1 Fixed asset turnover ratio: (in millions)
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2
E8–3B.
Req. 1
Date
Assets
Liabilities
Stockholders’ Equity
January
1
No effect
No effect
No effect
January
2
Cash
Equipment
–8,000
+29,000
Short term
note payable
+21,000
January
3
Cash
Equipment
–2,000
+2,000
No effect
No effect
No effect
January
5
Cash
Equipment
–2,900
+2,900
No effect
No effect
July 1
Cash
–22,050
Short term
note payable
–21,000
Interest
expense*
–1,050
3
Req. 3
Depreciation for 2014: ($33,900 cost – $3,000 residual value) x 1/10
$ 3,090
Req. 4
On July 1, 2014, $1,050 ($21,000 x 10% x 6/12) is paid and is recorded as interest
expense. The amount is not capitalized (added to the cost of the asset) because
interest is capitalized only on constructed assets. This machine was purchased.
Req. 5
Equipment (cost) …………………………………………………………………………..
Less: Accumulated depreciation ($3,090 x 2 years) …………………………
Net book value at end of 2015 ………………………………………………………..
E8–4B.
Req. 1
Adjusting entry for 2013:
Depreciation expense (+E, −SE) …………………………………
Accumulated depreciation, equipment (+XA, −A) ……..
($120,000 – $5,000) x 1/10 = $11,500.
Req. 2 ( beginning of 2014)
Estimated life 10 years
Less: Used life –
4
$51,750 accumulated depreciation $11,500 annual expense = 4.5 years
Remaining life 5.5 years
Req. 3 (during 2014):
Repair and maintenance expense (+E, −SE) ………………..
Cash (−A)……………………………………………………………
(Ordinary repairs incurred.)
Equipment (+A) ………………………………………………………..
Cash (−A)……………………………………………………………
Extraordinary repairs incurred and capitalized.
E8–5B.
Date
Assets
Liabilities
Stockholders’ Equity
1. 2013*
Accumulated
depreciation
–11,500
Depreciation
expense
–11,500
2a. 2014
Cash
–1,500
Repair and
maintenance
expense
–1,500
2b. 2014
Cash
Equipment
–12,500
+12,500
* Adjusting entry for 2013:
($120,000 cost – $5,000 residual value) x 1/10 = $11,500.
E8–6B.
Req. 1
a. Straight-line:
Depreciation
Accumulated
Net
Chapter 08 – Reporting and Interpreting Property, Plant, and Equipment; Intangibles; and Natural Resources
5
Year
Computation
Expense
Depreciation
Book Value
At acquisition
$18,000
1
($18,000 – $3,000) x 1/4
$3,750
$3,750
14,250
2
($18,000 – $3,000) x 1/4
3,750
7,500
10,500
3
($18,000 – $3,000) x 1/4
3,750
11,250
6,750
4
($18,000 – $3,000) x 1/4
3,750
15,000
3,000
b. Units-of-production: ($18,000 – $3,000) 6,000 = $2.50 per hour of output
Year
Computation
Depreciation
Expense
Accumulated
Depreciation
Net
Book Value
At acquisition
$18,000
1
$2.50 x 2,400 hours
$6,000
$6,000
12,000
2
$2.50 x 2,100 hours
5,250
11,250
6,750
3
$2.50 x 1,200 hours
3,000
14,250
3,750
4
$2.50 x 300 hours
750
15,000
3,000
c. Double-declining-balance:
Year
Computation
Depreciation
Expense
Accumulated
Depreciation
Net
Book Value
At acquisition
$18,000
1
($18,000 – $0) x 2/4
$9,000
$9,000
9,000
2
($18,000 – $9,000) x 2/4
4,500
13,500
4,500
3
($18,000 – $13,500) x 2/4
2,250 1,500
15,750 15,000
2,250 3,000
4
0
0
0
Req. 2
If the machine is used evenly throughout its life and its efficiency (economic value in
Too large. Net book value cannot be below residual value.
6
E8–7B.
Req. 1
a. Straight-line:
Year
Computation
Depreciation
Expense
Accumulated
Depreciation
Net
Book Value
At acquisition
$640,000
1
($640,000 – $20,000) x 1/5
$124,000
$124,000
516,000
2
($640,000 – $20,000) x 1/5
124,000
248,000
392,000
3
($640,000 – $20,000) x 1/5
124,000
372,000
268,000
4
($640,000 – $20,000) x 1/5
124,000
496,000
144,000
5
($640,000 – $20,000) x 1/5
124,000
620,000
20,000
b. Units-of-production: ($640,000 – $20,000) 200,000 = $3.10 per unit of output.
Year
Computation
Depreciation
Expense
Accumulated
Depreciation
Net
Book Value
At acquisition
$640,000
1
$3.10 x 85,000 units
$263,500
$263,500
376,500
2
$3.10 x 52,000 units
161,200
424,700
215,300
3
$3.10 x 28,000 units
86,800
511,500
128,500
4
$3.10 x 20,000 units
62,000
573,500
66,500
5
$3.10 x 15,000 units
46,500
620,000
20,000
c. Double-declining-balance:
Year
Computation
Depreciation
Expense
Accumulated
Depreciation
Net
Book Value
At acquisition
$640,000
1
($640,000 – 0) x 2/5
$256,000
$256,000
384,000
2
($640,000 – $256,000) x 2/5
153,600
409,600
230,400
3
($640,000 – $409,600) x 2/5
92,160
501,760
138,240
4
($640,000 – $501,760) x 2/5
55,296
557,056
82,944
5
($640,000 – $557,056) x 2/5
33,178
590,234
49,766
62,944
620,000
20,000
Too small. Net book value cannot be above residual value.
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3. The book value does not purport to be market value, so a loss or gain on disposal
of a long-lived asset normally would occur.
E8–9B.
Req. 1
Acquisition cost:
Technology $80,000
Patent 7,500
Trademark 12,000
Req. 2