Chapter 08 – Reporting and Analyzing Long-Term Assets
Exercise 8-9 (10 minutes)
Straight-line depreciation for 2012
Exercise 8-10 (15 minutes)
Double-declining-balance depreciation for 2012 and 2013:
Rate = (100% / 5 years) x 2 = 40%
Depreciation for 2012 ($280,000 x 40% x 9/12) ……………
$ 84,000
Book value at January 1, 2013 ($280,000 – $84,000) ……
$196,000
Depreciation for 2013 ($196,000 x 40%) ……………………..
$ 78,400
Alternate calculation
2012 depreciation ($280,000 x 40% x 9/12) …………………………...
$ 84,000
2013 depreciation
$280,000 x 40% x 3/12 …………………………………………………….
$ 28,000
($280,000 – $84,000 – $28,000) x 40% x 9/12 ………………………
50,400
Total 2013 depreciation ………………………………………………………
$ 78,400
Exercise 8-11 (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 8-12 (30 minutes)
Straight-line depreciation
Income
before
Depreciation
Depreciation
Expense*
Net
Income
Year 1 ……..
$ 38,960
$ 49,540
Year 2 ……..
38,960
49,540
Year 3 ……..
38,960
49,540
Year 4 ……..
38,960
49,540
Year 5 ……..
38,960
49,540
Totals ……..
$194,800
$247,700
*($238,400 – $43,600) / 5 years = $38,960
Exercise 8-13 (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 8-16 (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.
© 2015 by McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.
Financial Accounting, 7th Edition
16
Exercise 8-19 (10 minutes)
Jan. 1
Copyright …………………………..…………………………..
418,000
Cash………………………………………………………….…….
418,000
00
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. $3,273 million cash for property and equipment
2. $1,988 million for
depreciation and amortization
3. $13,056 million cash used in investing activities
Exercise 8-22 (15 minutes)
(4.59 – 3.36) more times in 2013 than in 2012. This increase indicates that the
company became more efficient in using its assets. Moreover, it has improved its
$5,856,480
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
© 2015 by McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.
Solutions Manual, Chapter 8
19
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 …………………………………………………….…
Land ……………………………………………………………………..
Land Improvements …………………………………..…………..
Vehicles ……………………………………………………….
Cash ……………………………………………………….
900,000
To record asset purchases.
Part 2
Year 2013 straight-line depreciation on building
[($477,000 – $27,000) / 15 years] = $30,000
Part 3
Year 2013 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 (45 minutes)
Part 1
Land
Building
2
Building
3
Land
Improve-
ments 1
Purchase price* ……….………
$1,612,000
$598,000
$390,000
Demolition ………………………
328,400
Land grading …………..………
175,400
New building……………………
$2,202,000
New improvements ….………
_________
_______
_________
_______
Totals …………………………..
$2,115,800
$598,000
$2,202,000
$390,000
*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].