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Problem 8-3A (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
2015
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
2015
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].
Problem 8-4A (50 minutes)
2014
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.
*2014 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
2015
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.
*2015 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 8-5A (40 minutes)
2014
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].
2015
Dec. 31
Depreciation Expense—Trucks ................................
5,200*
Accumulated Depreciation—Trucks ....................
5,200
To record depreciation.
*2015 depreciation
Total cost ................................................................................................
$ 22,000
Less accumulated depreciation (from 2014) ................................
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 2014 ................................................................
1 yrs.
Revised remaining useful life ................................................................
3 yrs.
Total depreciation for 2015 ($15,600/3) ................................
$ 5,200
2016
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 12/31/2016
2014 .................................................................................
$ 4,000
2015 .................................................................................
5,200
2016 .................................................................................
5,200
Total ................................................................................
$14,400
***Book value of truck at 12/31/2016
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 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
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 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
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.
Differences—They are different in that they apply to different types of long-
term assets: amortization applies to intangible assets with (definite) useful
lives; depletion applies to natural resources; and depreciation applies to
plant assets. Also, amortization is typically computed using the straight-
line method, whereas the units-of-production method is routinely used in
depletion.
Problem 8-8A (20 minutes)
1.
2015
(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.
2015
(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 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
Problem 8-2B (25 minutes)
Cost of machine ................................
$324,000
Less estimated salvage value ................................
30,000
Total depreciable cost ................................
$294,000
Year
Straight-Linea
Units-of-Productionb
Double-Declining-
Balancec
1 ...................
$ 58,800
$ 71,120
$129,600
2 ...................
58,800
64,080
77,760
3 ...................
58,800
63,400
46,656
4 ...................
58,800
68,720
27,994
5 ...................
58,800
26,680
11,990
Totals ...........
$294,000
$294,000
$294,000
aStraight- line:
Cost per year = $294,000/5 years = $58,800 per year
bUnits-of-production:
Cost per unit = $294,000/1,470,000 units = $0.20 per unit
Year
Units
Unit Cost
Depreciation
1 ..............
355,600
$0.20
$ 71,120
2 ..............
320,400
0.20
64,080
3 ..............
317,000
0.20
63,400
4 ..............
343,600
0.20
68,720
5 ..............
138,500
0.20
26,680*
Total ........
$294,000
* Take only enough depreciation in Year 5 to reduce book
value to the asset’s $30,000 salvage value.
cDouble-declining-balance (amounts rounded to the nearest dollar):
(100%/5) x 2 = 40% depreciation rate
Year
Beginning
Book Value
Annual
Depreciation
(40% of
Book Value)
Accumulated
Depreciation
at the End of
the Year
Ending Book Value
($324,000 Cost less
Accumulated
Depreciation)
1 ............
$324,000
$129,600
$129,600
$194,400
2 ............
194,400
77,760
207,360
116,640
3 ............
116,640
46,656
254,016
69,984
4 ............
69,984
27,994*
282,010
41,990
5 ............
41,990
11,990**
294,000
30,000
Total......
$294,000
* rounded
** Take only enough depreciation in Year 5 to reduce book value to the
asset’s $30,000 salvage value.
Problem 8-3B (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
2015
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
2015
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 8-4B (50 minutes)
2014
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.
*2014 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
2015
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.
*2015 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
