Type
Solution Manual
Book Title
Financial Accounting Fundamentals 5th Edition
ISBN 13
978-0078025754

978-0078025754 Chapter 8 Solution Manual Part 1

March 26, 2020
Chapter 8
Accounting for Long-Term Assets
QUESTIONS
1. A plant asset is tangible; it is used in the production or sale of other assets or services;
and it has a useful life longer than one accounting period.
2. The cost of a plant asset includes all normal and reasonable expenditures necessary to
get the asset in place and ready for its intended use.
3. Land is an asset with an unlimited life and, therefore, is not subject to depreciation.
Land improvements have limited lives and are subject to depreciation.
5. The Accumulated DepreciationMachinery account is a contra asset account with a
credit balance that cannot be used to buy anything. The balance of the Accumulated
6. The Modified Accelerated Cost Recovery System is not generally acceptable for financial
7. The materiality constraint justifies charging low-cost plant asset purchases to expense
because such amounts are unlikely to impact the decisions of financial statement users.
8. Ordinary repairs are made to keep a plant asset in normal, good operating condition, and
9. A company might sell or exchange an asset when it reaches the end of its useful life, or
10. The process of allocating the cost of natural resources to expense over the periods
11. No, depletion expense should be calculated on the units that are extracted (similar to the
units-of-production basis) and sold.
12. An intangible asset: (1) has no physical existence; (2) derives value from the unique
13. Intangible assets are generally recorded at their cost and amortized over their predicted
useful life. (However, some costs are not included, such as the research and
14. A company has goodwill when its value exceeds the value of its individual assets and
15. No; this type of goodwill would not be amortized. Instead, the FASB (SFAS 142) requires
that goodwill be annually tested for impairment. If the book value of goodwill does not
16. Total asset turnover is calculated by dividing net sales by average total assets.
17. The word “net” means that Apple is reporting its property and equipment after deducting
accumulated depreciation to date.
21. (a) The main difference between plant assets and current assets is that current assets
are consumed or converted into cash within a short period of time, while plant assets
QUICK STUDIES
Quick Study 8-1 (10 minutes)
Quick Study 8-2 (10 minutes)
Expensed or Capitalized Asset Category (if any) .
1. Expensed
2. Capitalized Equipment
Quick Study 8-3 (10 minutes)
Straight-line:
Quick Study 8-4 (10 minutes)
Quick Study 8-5 (10 minutes)
$65,800
Cost
Quick Study 8-6 (10 minutes)
Note: Double-declining-balance rate = (100% / 8 years) x 2 = 25%
First year:
Quick Study 8-7 (10 minutes)
Quick Study 8-8 (10 minutes)
1. (a) Capital expenditure
2.
(a) Equipment................................................................
40,000
Cash ................................................................
40,000
(b)* Maintenance Expense ............................................
200
Quick Study 8-9 (15 minutes)
Book value of old equipment = $76,800 - $40,800 = $36,000
1.
Cash ................................................................................
47,000
Accumulated depreciation ............................................
40,800
2.
Cash ................................................................................
36,000
3.
Cash ................................................................................
31,000
Accumulated depreciation ............................................
40,800
Quick Study 8-10 (10 minutes)
1.
Ore Mine ..........................................................................
1,800,000
2.
Depletion per unit = = $1.60 per ton
Quick Study 8-11 (10 minutes)
a. Oil well NR
Quick Study 8-12 (10 minutes)
1.
Jan. 4
Leasehold Improvements ...............................................
105,000
2.
$1,800,000 - $200,000
Quick Study 8-13 (10 minutes)
Quick Study 8-14A (10 minutes)
Book value of old machine = $42,400 - $18,400 = $24,000
1.
Machinery (new) ........................................................
52,000
Quick Study 8-15 (10 minutes)
a. Accounting for plant assets involving cost determination,
depreciation, additional expenditures, and disposals of plant assets
is subject to broadly similar guidance for both U.S. GAAP and IFRS.
EXERCISES
Exercise 8-1 (15 minutes)
Invoice price of machine .........................................................
$ 12,500
Less discount (.02 x $12,500) .................................................
(250)
Exercise 8-2 (15 minutes)
Cost of land
Purchase price for land ...........................................................
$ 280,000
Purchase price for old building ................................
110,000
Allocation of total cost
Appraised
Value
Percent
of Total
Applying %
to Cost
Apportioned
Cost
Land ..............................
$157,040
40%
$395,380 x .40
$158,152
Journal entry
Exercise 8-4 (10 minutes)
Exercise 8-5 (10 minutes)
Exercise 8-6 (15 minutes)
Double-declining-balance
Exercise 8-7 (15 minutes)
Straight-line depreciation: ($154,000 - $25,000) / 4 years = $32,250 per year
Year
Annual Depreciation
Year-End Book Value
2015 ........
$ 32,250
$121,750
Exercise 8-8 (20 minutes)
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
2015 .......
$154,000
50%
$ 77,000
$77,000
Exercise 8-9 (30 minutes)
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
Exercise 8-10 (30 minutes)
Double-declining-balance depreciation
Income
before
Depreciation
Depreciation
Expense*
Net
Income
Year 1 ........
$ 88,500
$ 95,360
$ (6,860)
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)
Exercise 8-11 (10 minutes)
Straight-line depreciation for 2014
Exercise 8-12 (15 minutes)
Double-declining-balance depreciation for 2014 and 2015:
Rate = (100% / 5 years) x 2 = 40%
Depreciation for 2014 ($280,000 x 40% x 9/12) ...............
$ 84,000
Exercise 8-13 (15 minutes)
1.
Original cost of machine .............................................................
$ 23,860
Exercise 8-14 (15 minutes)
To record betterment.
To record ordinary repairs.
To record extraordinary repairs.
Exercise 8-15 (25 minutes)
1. Annual depreciation = $572,000 / 20 years = $28,600 per year
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
New estimate of useful life (20 - 15 + 5) ...........................
10 years
Exercise 8-16 (20 minutes)
Note: Book value of milling machine = $250,000 - $182,000 = $68,000
1. Disposed at no value
Jan. 3
Loss on Disposal of Milling Machine .........................
68,000
2. Sold for $35,000 cash
Jan. 3
Cash ..............................................................................
35,000
3. Sold for $68,000 cash
Jan. 3
Cash ..............................................................................
68,000
4. Sold for $80,000 cash
Jan. 3
Cash ..............................................................................
80,000
Exercise 8-17 (25 minutes)
2019
1. Sold for $45,500 cash
July 1
Cash ..............................................................................
45,500
Accumulated DepreciationMachinery ....................
67,500
2. Destroyed by fire with $25,000 cash insurance settlement
July 1
Cash ..............................................................................
25,000
Exercise 8-18 (10 minutes)
$2.44 per ton; 166,200 tons x $2.44 = $405,528].
$0.14 per ton; 166,200 tons x $0.14 = $23,268].

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