Unlock document.
This document is partially blurred.
Unlock all pages and 1 million more documents.
Get Access
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
Year 3 ........
88,500
38,960
49,540
Year 4 ........
88,500
38,960
49,540
Year 5 ........
88,500
38,960
49,540
Totals.........
$442,500
$194,800
$247,700
*($238,400 - $43,600) / 5 years = $38,960
Exercise 8-10 (30 minutes)
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
Year 3 ........
88,500
34,330
54,170
Year 4 ........
88,500
7,894
80,606
Year 5 ........
88,500
0
88,500
Totals ........
$442,500
$194,800
$247,700
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
Year 2 ..............
143,040
57,216
152,576
85,824
Year 3 ..............
85,824
34,330**
186,906
51,494
Year 4 ..............
51,494
7,894***
194,800
43,600
Year 5 ..............
43,600
0
194,800
43,600
Total ................
$194,800
** rounded
*** Must not use $20,598; instead take only enough depreciation in Year 4 to
reduce book value to the $43,600 salvage value.
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
Book value at January 1, 2015 ($280,000 - $84,000) ......
$196,000
Depreciation for 2015 ($196,000 x 40%) ..........................
$ 78,400
Alternate calculation
2014 depreciation ($280,000 x 40% x 9/12) ..................................
$ 84,000
2015 depreciation
$280,000 x 40% x 3/12 ...............................................................
$ 28,000
($280,000 - $84,000 - $28,000) x 40% x 9/12 ............................
50,400
Total 2015 depreciation ..................................................................
$ 78,400
Exercise 8-13 (15 minutes)
1.
Original cost of machine .............................................................
$ 23,860
Less two years' accumulated depreciation
[($23,860 - $2,400) / 4 years] x 2 years ................................
(10,730)
Book value at end of second year ..............................................
$ 13,130
2.
Book value at end of second year ..............................................
$ 13,130
Less revised salvage value .........................................................
(2,000)
Remaining depreciable cost .......................................................
$ 11,130
Revised annual depreciation = $11,130 / 3 years = $3,710
Exercise 8-14 (15 minutes)
1.
Equipment .....................................................................
22,000
Cash ........................................................................
22,000
To record betterment.
2.
Repairs Expense ...........................................................
6,250
Cash ........................................................................
6,250
To record ordinary repairs.
3.
Equipment .....................................................................
14,870
Cash ........................................................................
14,870
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
Building ...........................................................................
68,350
Cash ........................................................................
68,350
To record extraordinary repairs.
3.
Cost of building
Before repairs ................................................................
$572,000
Add cost of repairs .........................................................
68,350
$640,350
Less accumulated depreciation ................................
429,000
Revised book value of building ................................
$211,350
4.
Revised book value of building (part 3) ...........................
$211,350
New estimate of useful life (20 - 15 + 5) ...........................
10 years
Revised annual depreciation ............................................
$ 21,135
Journal entry
Depreciation Expense....................................................
21,135
Accumulated Depreciation–Building .......................
21,135
To record depreciation.
Exercise 8-16 (20 minutes)
1. Disposed at no value
Jan. 3
Loss on Disposal of Milling Machine .........................
68,000
Accumulated Depreciation—Milling Machine ...........
182,000
Milling Machine ........................................................
250,000
To record disposal of milling machine.
2. Sold for $35,000 cash
Jan. 3
Cash...............................................................................
35,000
Loss on Sale of Milling Machine ................................
33,000
Accumulated Depreciation—Milling Machine ...........
182,000
Milling Machine ........................................................
250,000
To record cash sale of milling machine.
3. Sold for $68,000 cash
Jan. 3
Cash...............................................................................
68,000
Accumulated Depreciation—Milling Machine ...........
182,000
Milling Machine ........................................................
250,000
To record cash sale of milling machine.
4. Sold for $80,000 cash
Jan. 3
Cash...............................................................................
80,000
Accumulated Depreciation—Milling Machine ...........
182,000
Gain on Sale of Milling Machine .............................
12,000
Milling Machine ........................................................
250,000
To record cash sale of milling machine.
Exercise 8-17 (25 minutes)
2019
July 1
Depreciation Expense .............................................
7,500
Accumulated Depreciation--Machinery ............
7,500
To record one-half year depreciation.*
*Annual depreciation = $105,000 / 7 years = $15,000
Depreciation for 6 months in 2019 = $15,000 x 6/12 = $7,500
1. Sold for $45,500 cash
July 1
Cash...............................................................................
45,500
Accumulated Depreciation—Machinery ....................
67,500
Gain on Sale of Machinery.......................................
8,000
Machinery ................................................................
105,000
To record sale of machinery.*
*Total accumulated depreciation at date of disposal:
Four years 2015-2018 (4 x $15,000) ........ $60,000
Partial year 2019 (6/12 x $15,000) ............ 7,500
Total accumulated depreciation ............. $67,500
Book value of machinery = $105,000 - $67,500 = $37,500
2. Destroyed by fire with $25,000 cash insurance settlement
July 1
Cash...............................................................................
25,000
Loss from Fire ..............................................................
12,500
Accumulated Depreciation—Machinery ....................
67,500
Machinery ................................................................
105,000
To record disposal of machinery from fire.
Exercise 8-18 (10 minutes)
Dec. 31
Depletion Expense—Mineral Deposit ........................
405,528
Accumulated Depletion—Mineral Deposit ............
405,528
To record depletion [$3,721,000/1,525,000 tons =
$2.44 per ton; 166,200 tons x $2.44 = $405,528].
Dec. 31
Depreciation Expense—Machinery ...........................
23,268
Accumulated Depreciation—Machinery ...............
23,268
To record depreciation [$213,500/1,525,000 tons=
$0.14 per ton; 166,200 tons x $0.14 = $23,268].
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
2. Goodwill is not amortized. Instead, Robinson must test the value of the
3. Goodwill is only recorded when it is purchased. Goodwill is not
Exercise 8-21 (15 minutes)
1. $7,358 million cash for property and equipment
2. $2,781 million for
depreciation and amortization
3. $13,679 million cash used in investing activities
Exercise 8-22 (15 minutes)
(4.59 – 3.36) more times in 2015 than in 2014. This increase indicates that the
company became more efficient in using its assets. Moreover, it has improved its
$5,856,480
Exercise 8-23A (15 minutes)
1. Book value of the old tractor ($96,000 - $52,500) .......................... $ 43,500
2. Loss on the exchange
3. Debit to new Tractor account
Cash paid + Trade-in allowance ($83,000 + $29,000) .............. $112,000
Alternatively, answers can be taken from the following journal entry:
Tractor (new)* ..............................................................................
112,000
Loss on Exchange of Assets ......................................................
14,500
Accumulated Depreciation–Tractor ...........................................
52,500
Tractor (old) .........................................................................
96,000
Cash .....................................................................................
83,000
To record asset exchange. *($29,000 + $83,000)
Exercise 8-24A (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 8-25 (20 minutes)
1.
Depreciation expense ....................................................
6,689
Accumulated depreciation—Property, plant
and equipment.....................................................
6,689
To record depreciation on property, plant and
equipment.
2.
Property, plant and equipment .....................................
11,061
Cash .........................................................................
11,061
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 ....................................................................
1,162
Property, plant and equipment ..............................
2,362
To record asset disposals.
4. Volkswagen would decrease its property, plant and equipment account
©2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in
any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
Solutions Manual, Chapter 8
477
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
2015
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 2015 straight-line depreciation on building
[($477,000 - $27,000) / 15 years] = $30,000
Part 3
Year 2015 double-declining-balance depreciation on land improvements
(100% / 5 years) x 2 = 40% rate
$27,000 x 40% = $10,800
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
later years. The result is to reduce taxable income more in earlier years but
less in later years. [Note: From a present value perspective, there is a tax
savings from use of accelerated depreciation. The company gets to use the
tax deferred amounts for investment purposes until they are due.]
Problem 8-2A (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
