Exercise 10-19 (10 minutes)
Jan. 1
Copyright ……………………………………………………….
418,000
Cash…………………………..……………………………..…….
418,000
To record purchase of copyright.
Dec. 31
Amortization Expense—Copyright ……………………….
41,800
Accumulated Amortization—Copyright …………….
41,800
To record amortization of copyright
[$418,000 / 10 years].
Exercise 10-20 (10 minutes)
1. Goodwill = $2,500,000 – $1,800,000 = $700,000
Exercise 10-21 (15 minutes)
1. $11,761,000 cash for property and equipment
Exercise 10-22 (15 minutes)
Total asset turnover for 2012 = = 3.36
Analysis comments. Based on these calculations, Lok turned its assets over 1.23
(4.59 – 3.36) more times in 2013 than in 2012. This increase indicates that the
$5,856,480
($1,800,000 + $1,686,000)/2
($1,982,000 + $1,800,000)/2
Exercise 10-23A (15 minutes)
1. Book value of the old tractor ($96,000 – $52,500) …………………….. $ 43,500
2. Loss on the exchange
Book value – Trade-in allowance ($43,500 – $29,000) ………….. $ 14,500
Alternatively, answers can be taken from the following journal entry:
112,000
14,500
52,500
96,000
83,000
Exercise 10-24A (25 minutes)
1. Sold for $18,250 cash
Jan. 2
Cash …………………………………………………………..……….
18,250
Loss on Sale of Machinery …………………………..
1,125
Accumulated Depreciation—Machinery (old) ..……….
24,625
Machinery (old) ……………………………………….……….
44,000
To record cash sale of machine.
2. $25,000 trade-in allowance exceeds book value; but no gain is
recognized on an asset exchange that lacks commercial substance
($5,625 gain is ‘buried’ in the cost of the new machinery)
Jan. 2
Machinery (new)* ………………………………………………….
54,575
Accumulated Depreciation—Machinery (old) ..……….
24,625
Machinery (old) ……………………………………….……….
44,000
Cash** …………………………………………………….…
35,200
To record asset exchange.
*[$60,200 – ($25,000 – $19,375)] **($60,200 – $25,000)
3. $15,000 trade-in allowance is less than book value (yielding a loss)
Jan. 2
Machinery (new) ………………………………………….……….
60,200
Loss on Exchange of Machinery ………………….……….
4,375
Accumulated Depreciation—Machinery (old) ..……….
24,625
Machinery (old) ……………………………………….……….
44,000
Cash* ……………………………………………………....
45,200
To record asset exchange. *($60,200 – $15,000)
Exercise 10-25 (20 minutes)
1.
Depreciation expense …………………………………………….
4,731
Accumulated depreciation—Property, plant
and equipment……………………………………………..
4,731
To record depreciation on property, plant and
equipment.
2.
Property, plant and equipment ……………………………….
5,634
Cash ……………………………………………………………….
5,634
To record betterments (improvements) on property,
plant and equipment.
3.
Cash …………………………..…………………………………………
700
Loss on disposal of property, plant and equipment ..
500
Accumulated Depreciation—Property, plant and
equipment …………………………………………………………..
1,322
Property, plant and equipment …………………………
2,522
To record asset disposal.
PROBLEM SET A
Problem 10-1A (50 minutes)
Part 1
Estimated
Market Value
Percent
of Total
Apportioned
Cost
Building ……………………..
$508,800
53%
$477,000
Land ………………………….
297,600
31
279,000
Land improvements ……
28,800
3
27,000
Vehicles …………………….
124,800
13
117,000
Total ………………………….
$960,000
100%
$900,000
2013
Jan. 1
Building …………………………………………………….…
477,000
Land ……………………………………………………………………..
279,000
Land Improvements …………………………………..…………..
27,000
Vehicles ……………………………………………………….
117,000
Cash …………………………..……………………….….
900,000
To record asset purchases.
Part 2
Year 2013 straight-line depreciation on building
Part 3
Year 2013 double-declining-balance depreciation on land improvements
Part 4
Accelerated depreciation does not lower the total amount of taxes paid over
the asset’s life. Instead, it defers or postpones taxes to the later years of an
asset’s useful life. This is because accelerated methods charge a higher
portion of asset costs against revenue in earlier years and a lower portion in
Problem 10-2A (45 minutes)
Part 1
Land
Building
2
Building
3
Land
Improve-
ments 1
Land
Improvements
2
Purchase price* ……….………
$1,612,000
$598,000
$390,000
Demolition ………………………
328,400
Land grading …………..………
175,400
New building……………………
$2,202,000
New improvements ….………
_________
_______
_________
_______
$164,000
Totals …………………………..
$2,115,800
$598,000
$2,202,000
$390,000
$164,000
*Allocation of purchase price
Appraised
Value
Percent
of Total
Apportioned
Cost**
Land …………………………………..
$1,736,000
62%
$1,612,000
Building 2 …………………………..
644,000
23
598,000
Land Improvements 1 ………....
420,000
15
390,000
Totals ………………………………...
$2,800,000
100%
$2,600,000
**Multiply the percentages in column 3 by the $2,600,000 purchase price.
Part 2
2013
Jan. 1
Land …………………………………………………………….
2,115,800
Building 2 …………………………………………………….
598,000
Building 3 …………………………………………………….
2,202,000
Land Improvements 1 …………………………………..
390,000
Land Improvements 2 …………………………………..
164,000
Cash ……………………………………………………….
5,469,800
To record costs of plant assets.
Part 3
2013
Dec. 31
Depreciation Expense—Building 2 …………………….…..
26,900
Accumulated Depreciation—Building 2 ………..…..
26,900
To record depreciation [($598,000 – $60,000)/20].
31
Depreciation Expense—Building 3 …………………….…..
72,400
Accumulated Depreciation—Building 3 ………..…..
72,400
To record depreciation [($2,202,000 – $392,000)/25].
31
Depreciation Expense—Land Improv. 1 ……………..…..
32,500
Accum. Depreciation—Land Improv. 1 ………….…..
32,500
To record depreciation [$390,000/12].
31
Depreciation Expense—Land Improv. 2 ……………..…..
8,200
Accum. Depreciation—Land Improv. 2 ………….…..
8,200
To record depreciation [$164,000/20].
Problem 10-3A (50 minutes)
2012
Jan. 1
Equipment …………………………..…………………………..
300,600
Cash …………………………………………………………...
300,600
To record loader costs ($287,600 +$11,500 +$1,500).
Jan. 3
Equipment …………………………..…………………………..
4,800
Cash ………………………………………………………….…..
4,800
To record betterment of loader.
Dec. 31
Depreciation Expense—Equipment ………………….…..
70,850*
Accumulated Depreciation—Equipment ……..…..
70,850
To record depreciation.
*2012 depreciation after January 3rd betterment
Total original cost ………………………………………………………….
$300,600
Plus cost of betterment ………………………………………………….
4,800
Revised cost of equipment ……………………………………………..
305,400
Less revised salvage ($20,600 + $1,400) …………………………
22,000
Cost to be depreciated ……………………………………………………
283,400
Annual depreciation ($283,400 / 4 years) ………………………….
$ 70,850
2013
Jan. 1
Equipment …………………………..…………………………..
5,400
Cash ………………………………………………………….…..
5,400
To record extraordinary repair on loader.
Feb. 17
Repairs Expense—Equipment …………………………..
820
Cash ………………………………………………………….…..
820
To record ordinary repair on loader.
Dec. 31
Depreciation Expense—Equipment ………………….…..
43,590*
Accumulated Depreciation—Equipment ……..…..
43,590
To record depreciation.
*2013 depreciation after January 1st extraordinary repair
Total cost ($305,400 + $5,400) ……………………………………………………….
$310,800
Less accumulated depreciation ……………………………………..………………..
70,850
Book value …………………………………………………………………….……………..
239,950
Less salvage ………………………………………………………………….………………..
22,000
Remaining cost to be depreciated …………………………………..…………………..
$217,950
Revised remaining useful life (Original 4 years – 1yr. + 2yrs.) ..……………………….
5 yrs.
Revised annual depreciation ($217,950 / 5 yrs) …………………………..
$ 43,590
Problem 10-4A (40 minutes)
2012
Jan. 1
Trucks ………………………………………………………………...
22,000
Cash ……………………………………………………………...
22,000
To record cost of truck ($20,515 + $1,485).
Dec. 31
Depreciation Expense—Trucks …………………………..
4,000
Accumulated Depreciation—Trucks ………………..
4,000
To record depreciation [($22,000 – $2,000)/5].
2013
Dec. 31
Depreciation Expense—Trucks …………………………..
5,200*
Accumulated Depreciation—Trucks ………………..
5,200
To record depreciation.
*2013 depreciation
Total cost ……………………………………………………………………………………
$ 22,000
Less accumulated depreciation (from 2012) …………..………………
4,000
Book value ……………………………………………………….…………………………..
18,000
Less revised salvage value …………………………………..…………………..
2,400
Remaining cost to be depreciated …………………………..
$ 15,600
Revised useful life ……………………………………………….………
4 yrs.
Less one year used in 2012 ………………………………….……………………
1 yrs.
Revised remaining useful life …………………………..…..………………………
3 yrs.
Total depreciation for 2013 ($15,600/3) ………………….……….
$ 5,200
2014
Dec. 31
Depreciation Expense—Trucks …………………………..
5,200
Accumulated Depreciation—Trucks ………………..
5,200
To record annual depreciation.
Dec. 31
Cash …………………………………………………………………...
5,300
Accumulated Depreciation—Trucks ……………………..
14,400**
Loss on Disposal of Trucks ………………………………....
2,300***
Trucks …………………………………………………………...
22,000
To record sale of truck.
**Accumulated depreciation on truck at 12/31/2014
2012 ……………………………………………………………………...
$ 4,000
2013 ……………………………………………………………………...
5,200
2014 ……………………………………………………………………...
5,200
Total ……………………………………………………………………..
$14,400
***Book value of truck at 12/31/2014
Total cost ……………………………………………………………...
$22,000
Less accumulated depreciation ……………………………...
(14,400)
Book value …………………………………………………………...
$ 7,600
Loss ($5,300 cash received – $7,600 book value) ……..
$ 2,300
Problem 10-5A (25 minutes)
Cost of machine ……………………………….…………………….
$257,500
Less estimated salvage value …………………………..
20,000
Total depreciable cost …………………………..
$237,500
Year
Straight–Linea
Units–of-Productionb
Double-Declining-
Balancec
1 ……………….…
$ 59,375
$110,000
$128,750
2 ……………….…
59,375
62,300
64,375
3 ……………….…
59,375
60,900
32,188
4 ……………….…
59,375
4,300
12,187
Totals ………..…
$237,500
$237,500
$237,500
aStraight- line:
Cost per year = $237,500/4 years = $59,375 per year
bUnits-of-production:
Cost per unit = $237,500/475,000 units = $0.50 per unit
Year
Units
Unit Cost
Depreciation
1 …………….
220,000
$0.50
$110,000
2 …………….
124,600
0.50
62,300
3 …………….
121,800
0.50
60,900
4 …………….
15,200
0.50
4,300*
Total ……...
$237,500
* Take only enough depreciation in Year 4 to reduce book
value to the asset’s $20,000 salvage value.
cDouble-declining-balance:
(100%/4) x 2 = 50% depreciation rate
Year
Beginning
Book
Value
Annual
Depreciation
(50% of
Book Value)
Accumulated
Depreciation
at the End of
the Year
Ending Book Value
($257,500 Cost Less
Accumulated
Depreciation)
1 ………
$257,500
$128,750
$128,750
$128,750
2 ………
128,750
64,375
193,125
64,375
3 ………
64,375
32,188*
225,313
32,187
4 ………
32,187
12,187**
237,500
20,000
Total ..
$237,500
* rounded
**Take only enough depreciation in Year 4 to reduce book value to
the asset’s $20,000 salvage value.
Problem 10-6A (20 minutes)
1.
Jan. 2
Machinery ……………………………………………………….
178,000
Cash …………………………..……………………………...
178,000
To record machinery purchase.
Jan. 3
Machinery ……………………………………………………….
2,840
Cash …………………………..……………………………...
2,840
To record machinery costs.
Jan. 3
Machinery ……………………………………………………….
1,160
Cash …………………………..……………………………...
1,160
To record machinery costs.
2. a. First year
Dec. 31
Depreciation Expense—Machinery ………………….……
28,000
Accumulated Depreciation—Machinery ……..……
28,000
To record depreciation [($182,000 – $14,000)/6].
b. Fifth year
Dec. 31
Depreciation Expense—Machinery ………………….……
28,000
Accumulated Depreciation—Machinery ……..……
28,000
To record year’s depreciation.
3. Accumulated depreciation at the date of disposal
Five years’ depreciation (5 x $28,000) …………………....
$140,000
Book value at the date of disposal
Original total cost ………………………………………………...
$182,000
Accumulated depreciation …………………………………....
(140,000)
Book value …………………………………………………………..
$ 42,000
a. Sold for $15,000 cash
Dec. 31
Cash ……………………………………………………………..…….
15,000
Loss on Sale of Machinery …………………………….…….
27,000
Accumulated Depreciation—Machinery ………….…….
140,000
Machinery ……………………………………………………….
182,000
b. Sold for $50,000 cash
Dec. 31
Cash ……………………………………………………………..…….
50,000
Accumulated Depreciation—Machinery ………….…….
140,000
Machinery ……………………………………………………….
182,000
Gain on Sale of Machinery …………………………..
8,000
c. Destroyed in fire and collected $30,000 cash from insurance co.
Dec. 31
Cash ……………………………………………………………..…….
30,000
Accumulated Depreciation—Machinery ………….…….
140,000
Loss from Fire …………………………..…………………..…….
12,000
Machinery ……………………………………………………….
182,000
Problem 10-7A (20 minutes)
a.
July 23
Mineral Deposit ……………………………………………………
4,715,000
Cash ……………………………………………………….
4,715,000
To record purchase of mineral deposit.
b.
July 25
Machinery ……………………………………………………….
410,000
Cash ……………………………………………………….
410,000
To record costs of machinery.
c.
Dec. 31
Depletion Expense—Mineral Deposit ……………………
441,600
Accum. Depletion—Mineral Deposit ……..…………
441,600
To record depletion [$4,715,000/
5,125,000 tons = $0.92 per ton.
480,000 tons x $0.92 = $441,600].
d.
Dec. 31
Depreciation Expense—Machinery …………….…………
38,400
Accum. Depreciation—Machinery ………..…………
38,400
To record depreciation [$410,000/
5,125,000 tons = $0.08 per ton.
480,000 tons x $0.08 = $38,400].
Analysis Component
Similarities—Amortization, depletion, and depreciation are similar in that
they are all methods of allocating costs of long-term assets to the periods
that benefit from their use.
Problem 10-8A (20 minutes)
1.
2013
(a)
June 25
Leasehold ……………………………………………………....
200,000
Cash ………………………………………………………..…….
200,000
To record payment for sublease.
(b)
July 1
Prepaid Rent………………………………………………….……
80,000
Cash ………………………………………………………..…….
80,000
To record prepaid annual lease rental.
(c)
July 5
Leasehold Improvements …………………………………….
130,000
Cash ………………………………………………………..…….
130,000
To record costs of leasehold improvements.
2.
2013
(a)
Dec. 31
Rent Expense ………………………………………………..…….
10,000
Accumulated Amortization—Leasehold …….…….
10,000
To record leasehold amortization ($200,000/10 x 6/12).
(b)
Dec. 31
Amortization Expense—Leasehold Improvements ….…….
6,500
Accumulated Amortization—Leasehold
Improvements …………………………………………….……..
6,500
To record leasehold improvement amortization
($130,000/10 years remaining on lease x 6/12).
(c)
Dec. 31
Rent Expense ………………………………………………..…….
40,000
Prepaid Rent ………………………………………………….
40,000
To record one-half year lease rental ($80,000 x 6/12).
PROBLEM SET B
Problem 10-1B (50 minutes)
Part 1
Estimated
Market Value
Percent
of Total
Apportioned
Cost
Building ……………………..
$ 890,000
50%
$ 900,000
Land …………………………..
427,200
24
432,000
Land improvements ……
249,200
14
252,000
Trucks ………………………..
213,600
12
216,000
Total …………………………..
$1,780,000
100%
$1,800,000
2013
Jan. 1
Buildings ……………………………………………..………..
900,000
Land …………………………………………………….…
432,000
Land Improvements ……………………………..……………….
252,000
Trucks ………………………………………………….……
216,000
Cash ……………………………………………….………
1,800,000
To record asset purchases.
Part 2
Year 2013 straight-line depreciation on building
Part 3
Year 2013 double-declining-balance depreciation on land improvements
Part 4
Accelerated depreciation does not increase the total amount of taxes paid
over the asset’s life. Instead, it defers or postpones taxes to the later years of
an asset’s useful life. This is because accelerated methods charge a higher
Problem 10-2B (45 minutes)
Part 1
Land
Building
B
Building
C
Land
Improve-
ments B
Land
Improve-
ments C
Purchase price* ……….
$ 868,000
$527,000
$155,000
Demolition ………………
122,000
Land grading …………..
174,500
New building……………
$1,458,000
New improvements ….
_________
_______
_________
_______
$103,500
Totals ……………………..
$1,164,500
$527,000
$1,458,000
$155,000
$103,500
Allocation of
purchase price
Appraised
Value
Percent
of Total
Apportioned
Cost
Land …………………………………..
$ 795,200
56%
$ 868,000
Building B …………………………..
482,800
34
527,000
Land Improvements B ……..…..
142,000
10
155,000
Totals …………………………….…..
$1,420,000
100%
$1,550,000
Part 2
2013
Jan. 1
Land ……………………………………………………………….
1,164,500
Building B……………………………………………………….
527,000
Building C……………………………………………………….
1,458,000
Land Improvements B ……………………………………..
155,000
Land Improvements C ……………………………………..
103,500
Cash ………………………………………………………….
3,408,000
To record cost of plant assets.
Part 3
2013
Dec. 31
Depreciation Expense—Building B …………………….…….
28,500
Accumulated Depreciation—Building B ……………………..
28,500
To record depreciation [($527,000 – $99,500)/15].
31
Depreciation Expense—Building C ……………………...
60,000
Accumulated Depreciation—Building C …………..
60,000
To record depreciation [($1,458,000 – $258,000)/20].
31
Depreciation Expense—Land Improvements B ……...
31,000
Accum. Depreciation—Land Improvements B ……..
31,000
To record depreciation [$155,000/5].
31
Depreciation Expense—Land Improvements C. ……..
10,350
Accum. Depreciation—Land Improvements C ……..
10,350
To record depreciation [$103,500/10].
Problem 10-3B (50 minutes)
2012
Jan. 1
Equipment …………………………..……………………………...
27,670
Cash ……………………………………………………………...
27,670
To record costs of van ($25,860 + $1,810).
Jan. 3
Equipment …………………………..……………………………...
1,850
Cash ……………………………………………………………...
1,850
To record betterment of van.
Dec. 31
Depreciation Expense—Equipment ……………………...
5,124*
Accumulated Depreciation—Equipment ………....
5,124
To record depreciation.
*2012 depreciation after January 3rd betterment
Total original cost ………………………………………………..……..
$27,670
Plus cost of betterment ………………………………………..…………
1,850
Revised cost of equipment ………………………………………………
29,520
Less revised salvage ($3,670 + $230) …………………………..
3,900
Cost to be depreciated ……………………………………………………
$25,620
Annual depreciation ($25,620 / 5 years) …………………………..
$ 5,124
2013
Jan. 1
Equipment …………………………..……………………………...
2,064
Cash ……………………………………………………………...
2,064
To record extraordinary repair on van.
May 10
Repairs Expense—Equipment ……………………………..
800
Cash ……………………………………………………………...
800
To record ordinary repair on van.
Dec. 31
Depreciation Expense—Equipment ……………………...
3,760
Accumulated Depreciation—Equipment ………....
3,760
To record depreciation.
*2013 depreciation after 1/1 extraordinary repair
Total cost ($29,520 + $2,064) ………………………………………….……………
$31,584
Less accumulated depreciation ……………………………………..………………..
5,124
Book value ……………………………………………………………………………………
26,460
Less salvage ……………………………………………………………………………………
3,900
Remaining cost to be depreciated ………………………………….……………………
$22,560
Revised remaining useful life (Original 5 years – 1yr. + 2yrs.) …………………………..
6 yrs.
Revised annual depreciation ($22,560 / 6 yrs) ………………….……….
$ 3,760