Exercise 8-19 (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 8-20 (10 minutes)
1. Goodwill = $2,500,000 – $1,800,000 = $700,000
Exercise 8-21 (15 minutes)
1. $11,761,000 cash for property and equipment
Exercise 8-22 (15 minutes)
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
Exercise 8-23A (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
Exercise 8-24A (25 minutes)
Note: Book value of Machine equals $44,000 – $24,625 = $19,375
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 8-25 (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.
4. Volkswagen would decrease its property, plant and equipment account
by €451 at December 31, 2010, for its total impairments for 2010.
PROBLEM SET A
Problem 8-1A (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
Financial & Managerial Accounting, 5th Edition
474
Problem 8-2A (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 8-3A (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.
To record depreciation.
Jan. 1
Equipment ……………………………………………………….
5,400
Cash ………………………………………………………….…..
5,400
To record extraordinary repair on loader.
Cash ………………………………………………………….…..
To record ordinary repair on loader.
Dec. 31
Depreciation Expense—Trucks …………………………..
Accumulated Depreciation—Trucks ………………..
5,200
Dec. 31
Accumulated Depreciation—Trucks ……………………..
To record sale of truck.
Problem 8-4A (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.
Problem 8-5A (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:
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.
Financial & Managerial Accounting, 5th Edition
478
Problem 8-6A (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
Dec. 31
Cash ……………………………………………………………..…….
50,000
Accumulated Depreciation—Machinery ………….…….
140,000
Machinery ……………………………………………………….
182,000
Gain on Sale of Machinery …………………………..
8,000
Dec. 31
Cash ……………………………………………………………..…….
30,000
Accumulated Depreciation—Machinery ………….…….
140,000
Loss from Fire ……………………………………………….…….
12,000
Machinery ……………………………………………………….
182,000
Problem 8-7A (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
Financial & Managerial Accounting, 5th Edition
480
Problem 8-8A (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 8-1B (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 8-2B (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 8-3B (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.
5,124
To record depreciation.
Jan. 1
Equipment …………………………………………………………..
2,064
Cash ……………………………………………………………...
2,064
To record extraordinary repair on van.
Cash ……………………………………………………………...
To record ordinary repair on van.
3,760