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Title: Exercise 10-2
QA_Ori:
Cost of land
Purchase price for land..............................................................$ 280,000
QA_Ori:
Cost of new building and land improvements
Cost of new building...................................................................$1,452,200
Journal entry
Land................................................................................. 470,500
To record costs of plant assets.
Title: Exercise 10-3
Purchase price.............................................................. $375,280
QA_Ori:
Allocation of total cost
Appraised
Value
Percent
of Total
Applying %
to Cost
Apportioned
Cost
Land...............................$157,040 40% $395,380 x .40 $158,152
QA_Ori:
Journal entry
Land........................................................................... 158,152
Title: Exercise 10-4
QA_Ori:
Straight-line depreciation: ($154,000 - $25,000) / 4 years = $32,250 per year
Year Annual Depreciation Year-End Book Value
2013........ $ 32,250 $121,750
Title: Exercise 10-5
QA_Ori:
Double-declining-balance depreciation
Depreciation rate: 100% / 4 years = 25% x 2 = 50%
Year
Beginning-Year
Book Value
Depreciation
Rate
Annual
Depreciation
Year-End
Book Value
2013....... $154,000 50% $ 77,000 $77,000
* Do not depreciate more than $13,500 in the third year since the salvage
value is not subject to depreciation.
Year
Beginning-Year
Book Value
Depreciation
Rate
Annual
Depreciation
Year-End
Book Value
2013....... $154,000 50% $ 77,000 $77,000
Title: Exercise 10-6
QA_Ori:
Straight-line
Title: Exercise 10-7
QA_Ori:
Units-of-production
Title: Exercise 10-8
QA_Ori:
Double-declining-balance
Double-declining-balance rate = (100% / 10 years) x 2 = 20% per year
Title: Exercise 10-9
QA_Ori:
Straight-line depreciation for 2012
Straight-line depreciation for 2013
Title: Exercise 10-10
QA_Ori:
Double-declining-balance depreciation for 2012 and 2013:
Alternate calculation
2012 depreciation ($280,000 x 40% x 9/12)..................................... $ 84,000
Title: Exercise 10-11
QA_Ori:
1. Original cost of machine.................................................................$ 23,860
Less two years' accumulated depreciation
2. Book value at end of second year..................................................$ 13,130
Title: Exercise 10-12
QA_Ori:
Straight-line depreciation
Income
before
Depreciation
Depreciation
Expense*
Net
Income
Year 1......... $ 88,500 $ 38,960 $ 49,540
Year 2......... 88,500 38,960 49,540
Title: Exercise 10-13
QA_Ori:
Double-declining-balance depreciation
Income
before
Depreciation
Depreciation
Expense*
Net
Income
Year 1......... $ 88,500 $ 95,360 $ (6,860)
Year 2......... 88,500 57,216 31,284
Supporting calculations for depreciation expense
*Note: (100% / 5 years) x 2 = 40% depreciation rate
Beginning
Book
Value
Annual
Depreciation
(40% of
Book Value)
Accumulated
Depreciation at
the End of the
Year
Ending Book Value
($238,400 Cost Less
Accumulated Depreciation)
Year 1................. $238,400 $ 95,360 $ 95,360 $143,040
** rounded
***Must not use $20,598; instead take only enough depreciation in Year 4 to reduce book value to the
$43,600 salvage value.
Title: Exercise 10-14
QA_Ori:
Age of the building = Accumulated depreciation / Annual depreciation
2. Entry to record the extraordinary repairs
3. Cost of building
Before repairs....................................................................$572,000
4. Revised book value of building (part 3)................................ $211,350
Title: Exercise 10-15
QA_Ori:
1. Equipment....................................................................... 22,000
2. Repairs Expense............................................................. 6,250
Title: Exercise 10-16
1. Disposed at no value
Jan. 3 Loss on Disposal of Milling Machine..............................68,000
Jan. 3 Cash...............................................................................35,000
Jan. 3 Cash...............................................................................68,000
4. Sold for $80,000 cash
Jan. 3 Cash...............................................................................80,000
Title: Exercise 10-17
QA_Ori:
2017
July 1 Depreciation Expense................................................ 7,500
July 1 Cash...............................................................................45,500
*Total accumulated depreciation at date of disposal:
2. Destroyed by fire with $25,000 cash insurance settlement
July 1 Cash...............................................................................25,000
Title: Exercise 10-18
QA_Ori
Dec. 31 Depletion Expense—Mineral Deposit.............................405,528
Dec. 31 Depreciation Expense—Machinery ...............................23,268
Title: Exercise 10-19
QA_Ori:
Jan. 1 Copyright........................................................................418,000
Dec. 31 Amortization Expense—Copyright..................................41,800
Title: Exercise 10-20
QA_Ori:
3. Goodwill is only recorded when it is purchased. Goodwill is not recorded by
the company that has created it.
Title: Exercise 10-21
QA_Ori:
1. $11,761,000 cash for property and equipment
Title: Exercise 10-22
QA_Ori:
$5,856,480
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 company
became more efficient in using its assets. Moreover, it has improved its efficiency in
using assets relative to its competitors who average 3.0. Together, these results based
on total asset turnover indicate that Lok has markedly improved its performance and is
currently superior to its competitors.
$8,679,690
($1,982,000 + $1,800,000)/2
