Chapter 08 – Reporting and Interpreting Property, Plant, and Equipment; Intangibles; and Natural Resources
E8–13.
Req. 1a
Cash (+A) ……………………………………………………………………
12,000
Accumulated depreciation (−XA, +A) ………………………………
23,000
Delivery truck (−A) …………………………………………………….
35,000
Sale of an asset at book value; the result is no loss or gain.
Cash (+A) ………………………………………………………………….
12,400
Accumulated depreciation (−XA, +A) …………………………….
23,000
Gain on sale of long-lived asset (+Gain, +SE) ……………..
400
Delivery truck (−A) …………………………………………………..
35,000
Sale of an asset above book value; the result is a gain.
Cash (+A) ……………………………………………………………………
11,500
Accumulated depreciation (−XA, +A) ………………………………
23,000
Loss on sale of long-lived asset (+Loss, −SE) ………………….
500
Delivery truck (−A) …………………………………………………….
35,000
Sale of an asset below book value; the result is a loss.
1. The loss or gain on disposal of a long-lived asset is the difference between the
disposal price and the book value at date of disposal.
3. The book value does not purport to be market value, so a loss or gain on disposal
Chapter 08 – Reporting and Interpreting Property, Plant, and Equipment; Intangibles; and Natural Resources
E8–15.
Req. 1
Depreciation expense per year:
$6,000 accumulated depreciation 3 years of usage = $2,000 per year
Estimated useful life:
Chapter 08 – Reporting and Interpreting Property, Plant, and Equipment; Intangibles; and Natural Resources
E8–18.
Req. 1
Acquisition cost:
Chapter 08 – Reporting and Interpreting Property, Plant, and Equipment; Intangibles; and Natural Resources
E8–19.
Req. 1 (January 1, 2015):
Leasehold improvements (+A) ……………………………………….
325,000
Cash (−A) ………………………………………………………………..
325,000
Leasehold improvements (−A) …………………………………….
Chapter 08 – Reporting and Interpreting Property, Plant, and Equipment; Intangibles; and Natural Resources
E8–21.
December 31, 2014:
Adjusting entry for 2014 depreciation:
Depreciation expense (+E, −SE) …….. ……………….
9,057
Accumulated depreciation, equipment (+XA, −A)
9,057
Computation:
($75,400 net book value – $12,000 residual value) x 1/7 = $9,057
Net book value computation:
$120,000 original cost
(57,600) accumulated depreciation through 2013
13,000 capitalized overhaul on January 2, 2014
$ 75,400 net book value on January 2, 2014
Remaining life computation:
15 years estimated life
($57,600 accumulated depreciation $7,200 expense) – 8 years used
7 years remaining
($120,000 original cost – $12,000 residual value) x 1/15 = $7,200 per year through 2013
Chapter 08 – Reporting and Interpreting Property, Plant, and Equipment; Intangibles; and Natural Resources
E8–23.
Req. 1
Depreciation expense prior to the change in estimates:
($330,000 cost – $30,000 residual value) x 1/50 = $6,000 annual depreciation
Req. 2
Depreciation expense after the change in estimates:
Step 1 – Age of the asset: $78,000 accumulated depreciation $6,000 annual expense
P8–1.
Req. 1
Long-lived assets are tangible and intangible resources owned by a business and used
in its operations over several years. Tangible assets (such as property, plant, and
equipment or natural resources) are assets that have physical substance. Intangible
assets (such as goodwill or patents) are assets that have special rights but not physical
substance.
Req. 2
Chapter 08 – Reporting and Interpreting Property, Plant, and Equipment; Intangibles; and Natural Resources
P8–1. (continued)
Req. 3
Date
Assets
Liabilities
Stockholders’ Equity
Jan 2
Equipment
Cash
+86,860
–2,400
Note payable
Accounts
payable
+60,000
+17,460
Common stock
Additional paid–in
capital
+2,000
+5,000
Jan 15
Cash
–18,000
Accounts
payable
–17,460
Financing
expense
–540
Req. 4
Cost of the machinery includes installation costs. Freight was excluded because it was
an expense paid by the vendor. No discount was taken because Summers Company
paid the cash balance due after the discount period ended. The lost discount is treated
as a financing expense. Common stock is valued at $3.50 per share—for accounting
purposes, this amount is allocated between the Common Stock account for the par
value ($1 per share) and the Additional Paid-In Capital account for the remaining value
($2.50 per share in excess of par value).
Chapter 08 – Reporting and Interpreting Property, Plant, and Equipment; Intangibles; and Natural Resources
P8–3.
Req. 1
Cost of each machine:
Machine
A
B
C
Total
Purchase price ………………………………
$11,000
$30,000
$8,000
$49,000
Installation costs …………………………....
500
1,000
500
2,000
Renovation costs …………………………...
2,500
1,000
1,500
5,000
Total cost …………………………………..
$14,000
$32,000
$10,000
$56,000
Req. 2
Computation of depreciation at the end of year 1 for each machine:
Machine
Method
Computation
A
Straight-line
($14,000 − $1,000) x 1/5 = $2,600
B
Units-of-production
($32,000 − $2,000) 60,000 hours = $0.50
$0.50 x 4,800 hours = $2,400
C
Double-declining-balance
($10,000 −$0) x 2/4 = $5,000
Adjusting entry:
Depreciation expense ($2,600 + $2,400 + $5,000) (+E, −SE)
10,000
Accumulated depreciation, Machine A (+XA, −A)
2,600
Accumulated depreciation, Machine B (+XA, −A)
2,400
Accumulated depreciation, Machine C (+XA, −A)
5,000
Chapter 08 – Reporting and Interpreting Property, Plant, and Equipment; Intangibles; and Natural Resources
P8–5.
Req. 1
a. Straight-line:
Year
Computation
Depreciation
Expense
Accumulated
Depreciation
Net
Book Value
At acquisition
$106,000
1
($106,000 – $2,000) x 1/13
$8,000
$ 8,000
98,000
2
($106,000 – $2,000) x 1/13
$8,000
16,000
90,000
At acquisition
1
2
Year
Computation
Depreciation
Accumulated
Depreciation
Net
Book Value
At acquisition
1
2
Chapter 08 – Reporting and Interpreting Property, Plant, and Equipment; Intangibles; and Natural Resources
P8–6.
Req. 1
a. Machine A – Sold on Jan. 1, 2015:
(1)
Depreciation expense in 2015 – none recorded because disposal
date was Jan. 1, 2015.
(2)
To record disposal:
Cash (+A) ………………………………………………………………..
5,000
Accumulated depreciation, Machine A (−XA, +A) …………..
15,750
Loss on disposal of machine (+Loss, −SE) …………………..
250
Equipment (Machine A) (−A) …………………………………
21,000
b. Machine B – Sold on December 31, 2015:
(1)
To record depreciation expense for 2015:
Depreciation expense (+E, −SE) …………………………………
4,600
Accumulated depreciation, Machine B (+XA, −A) …….
4,600
($50,000 – $4,000) 10 years = $4,600.
(2)
To record disposal:
Cash (+A) ………………………………………………………………..
2,500
Note receivable (+A)………………………………………………….
8,000
Accumulated depreciation, Machine B ($36,800 + $4,600)
(−XA, +A) ………………………………………………………………..
41,400
Gain on disposal of machine (+Gain, +SE) …………….
1,900
Equipment (Machine B) (−A) …………………………………
50,000
c. Machine C – Disposal on January 1, 2015:
(1)
Depreciation expense in 2015 – none recorded because disposal
date was Jan. 1, 2015.
(2)
To record disposal:
Accumulated depreciation, Machine C (−XA, +A) …………
64,000
Loss on disposal of machine (+Loss, −SE) …………………..
21,000
Equipment (Machine C) (−A) ………………………………..
85,000
Req. 2
Machine A: Disposal of a long-lived asset with the price below net book value results in
a loss.
Machine B: Disposal of a long-lived asset with the price above net book value results in
a gain.
Machine C: Disposal of a long-lived asset due to damage results in a loss equal to
remaining book value.
9,545.7
Beg. balance
1,671.7
Depreciation expense
Impairment loss
End. balance
P8–7.
Req. 1
Property, Plant and Equipment
Beg. balance
24,609.6
Acquisitions
1,234.4
1,618.3
Disposals/transfers
End. balance
24,225.7
Chapter 08 – Reporting and Interpreting Property, Plant, and Equipment; Intangibles; and Natural Resources
P8–8.
Req. 1
Date
Assets
Liabilities
Stockholders’ Equity
a.
Jan. 1
Patent
Cash
+28,000
–28,000
b.
Jan. 1
Assets (not detailed)
Goodwill
Cash
+154,000
+10,000
–164,000
c.
Dec. 31
Leasehold improvements
Cash
+15,600
–15,600
d.
2011
Cash
– 5,500
Repair and
maintenance
expense
-5,500
e.
Dec. 31
Accumulated depreciation,
machine A(1)
– 4,000
Depreciation
expense
–4,000
Cash
Machine A
Accumulated depreciation,
Machine A(2)
+6,000
–25,000
+20,000
Gain on
disposal of
long–lived
asset(3)
+1,000
f.
Dec. 31
Cash
Machine B
–5,000
+5,000
(1)
($25,000 – $5,000) x 1/5 = 4,000
(2)
Accumulated depreciation to Jan. 1, 2013 ……………….
$16,000
Add: Depreciation expense for 2013 ……………………….
4,000
Total accumulated depreciation ………………………….
$20,000
(3)
Cash proceeds of disposition…………………………………
$6,000
Net book value of Machine A ($25,000 – $20,000) ……
5,000
Gain on disposal of long-lived asset ……………………
$1,000
c.
Leasehold improvements: No amortization since constructed on December 31.
e.
Machine A: Machine A was sold on December 31, 2013. Depreciation expense
was recorded prior to the sale. No additional depreciation is necessary.
