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].
31
Depreciation Expense—Land Improv. 2 ……………..…..
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