Chapter 08 – Reporting and Analyzing Long-Term Assets
Problem 8-3A (50 minutes)
2012
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.
Depreciation Expense—Equipment ………………….…..
Accumulated Depreciation—Equipment ……..…..
To record depreciation.
Jan. 1
Equipment ……………………………………………………….
5,400
Cash ………………………………………………………….…..
5,400
To record extraordinary repair on loader.
Repairs Expense—Equipment …………………………..
Cash ………………………………………………………….…..
To record ordinary repair on loader.
Depreciation Expense—Equipment ………………….…..
Accumulated Depreciation—Equipment ……..…..
To record depreciation.
Problem 8-4A (40 minutes)
2012
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].
Dec. 31
Depreciation Expense—Trucks …………………………....
5,200*
Accumulated Depreciation—Trucks ………………..
5,200
To record depreciation.
Dec. 31
Depreciation Expense—Trucks …………………………....
Accumulated Depreciation—Trucks ………………..
5,200
Dec. 31
Accumulated Depreciation—Trucks ……………………..
To record sale of truck.
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].
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
Dec. 31
Cash ……………………………………………………………..…….
50,000
Accumulated Depreciation—Machinery ………….…….
140,000
Machinery ……………………………………………………….
182,000
Gain on Sale of Machinery …………………………..
8,000
Dec. 31
Cash ……………………………………………………………..…….
30,000
Accumulated Depreciation—Machinery ………….…….
140,000
Loss from Fire ……………………………………………….…….
12,000
Machinery ……………………………………………………….
182,000
Problem 8-8A (20 minutes)
1.
2013
(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.
2013
(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).
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Solutions Manual, Chapter 8
27
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
2013
Jan. 1
Buildings ……………………………………………..………..
900,000
Land …………………………………………………….…
432,000
Land Improvements ……………………………..……………….
252,000
Trucks ………………………………………………….……
216,000
Cash ……………………………………………….………
1,800,000
To record asset purchases.
Part 2
Year 2013 straight-line depreciation on building
[($900,000 – $120,000) / 12 years] = $65,000
Part 3
Year 2013 double-declining-balance depreciation on land improvements
(100% / 10 years) x 2 = 20% rate
$252,000 x 20% = $50,400
Part 4
Accelerated depreciation does not increase 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 and
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
deferred tax amounts for investment purposes until they are due.]
Problem 8-2B (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
2013
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
2013
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 (40 minutes)
2012
Jan. 1
Machinery ……………………………………………………….…..
114,270
Cash ………………………………………………………….…..
114,270
To record costs of machinery ($107,800 +$6,470).
Dec. 31
Depreciation Expense—Machinery …………………..…..
17,425
Accumulated Depreciation—Machinery …………..
17,425
To record depreciation [($114,270-$9,720)/6].
Depreciation Expense—Machinery …………………..…..
Accum. Depreciation—Machinery …………………..
27,500
To record depreciation.
Depreciation Expense—Machinery …………………..…..
27,500
Accumulated Depreciation—Machinery …………..
27,500
To record depreciation.
Dec. 31
Accumulated Depreciation—Machinery ………………..
To record sale of machine.