Chapter 08 – Reporting and Analyzing Long-Term Assets
Problem 8-5B (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 ……………….
$ 71,120
$129,600
2 ……………….
64,080
77,760
3 ……………….
63,400
46,656
4 ……………….
68,720
27,994
5 ……………….
26,680
11,990
Totals ………..
$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 8-6B (20 minutes)
1.
Jan. 1
Machinery ………………………………………………………...
150,000
Cash …………………………………………………………...
150,000
To record machinery costs.
Jan. 2
Machinery ………………………………………………………...
3,510
Cash …………………………………………………………...
3,510
To record machinery costs.
Jan. 4
Machinery ………………………………………………………...
4,600
Cash …………………………………………………………...
4,600
To record machinery costs.
2. a. First year
Dec. 31
Depreciation Expense—Machinery ……………………….
20,000
Accumulated Depreciation—Machinery ……….….
20,000
To record depreciation [($158,110-$18,110)/7 = $20,000].
Dec. 31
Depreciation Expense—Machinery ……………………….
20,000
Accumulated Depreciation—Machinery ……….….
20,000
To record the sixth year’s depreciation.
3. Accumulated depreciation at the date of disposal
First six years’ depreciation (6 x $20,000) ………………...
$120,000
Book value at the date of disposal
Original total cost …………………………………………………...
$158,110
Accumulated depreciation ……………………………………....
(120,000)
Total ……………………………………………………………………....
$ 38,110
a. Sold for $28,000 cash
Dec. 31
Cash ……………………………………………………………….…..
28,000
Loss on Sale of Machinery …………………………………..
10,110
Accumulated Depreciation—Machinery ………………..
120,000
Machinery ………………………………………………….…..
158,110
Dec. 31
Cash ……………………………………………………………….…..
52,000
Accumulated Depreciation—Machinery ………………..
120,000
Machinery ………………………………………………….…..
158,110
Gain on Sale of Machinery …………………………..
13,890
Dec. 31
Cash ……………………………………………………………….…..
25,000
Accumulated Depreciation—Machinery ………………..
120,000
Machinery ………………………………………………….…..
158,110
Problem 8-8B (20 minutes)
1.
2013
(a)
Jan. 1
Leasehold ……………………………………………………….…..
40,000
Cash ………………………………………………………….…..
40,000
To record payment for sublease.
(b)
Jan. 1
Prepaid Rent……………………………………………………….
36,000
Cash ………………………………………………………….…..
36,000
To record prepaid annual lease rental.
(c)
Jan. 3
Leasehold Improvements ………………………………..…..
20,000
Cash ………………………………………………………….…..
20,000
To record costs of leasehold improvements.
2.
2013
(a)
Dec. 31
Rent Expense ………………………………………………….…..
8,000
Accumulated Amortization—Leasehold …………..
8,000
To record leasehold amortization ($40,000/5).
(b)
Dec. 31
Amortization Expense—Leasehold Improvements ….…..
4,000
Accumulated Amortization—Leasehold
Improvements …………………………………………………..
4,000
To record leasehold improvement amortization
($20,000/5 years remaining on lease).
(c)
Dec. 31
Rent Expense ………………………………………………….…..
36,000
Prepaid Rent ……………………………………………..…..
36,000
To record annual lease rental.
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McGraw-Hill Education.
Solutions Manual, Chapter 8
35
1. For the three months ended March 31, 2014, depreciation expense was
$400 for office equipment and $1,250 for the computer equipment.
2.
December 31,
2013
December 31,
2014
Office Equipment …………………………….……
$ 8,000
$ 8,000
Accumulated Depreciation–Office
Equipment …………………………..……..……
400
2,000
Office Equipment (book value) ………..……
$ 7,600
$ 6,000
December 31,
2013
December 31,
2014
Computer Equipment …………………………..
$20,000
$20,000
Accumulated Depreciation–
Computer Equipment ………………………
1,250
6,250
Computer Equipment (book value) …..……
$18,750
$13,750
3.
Total asset turnover = Net sales / Average total assets
The 3-month total asset turnover at March 31, 2014:
$43,853 / [($93,248 + $129,909)/2] = 0.393 times (rounded)
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McGraw-Hill Education.
Financial Accounting, 7th Edition
36
1. The percent of original cost remaining to be depreciated is computed
by taking the ratio of the book value of property and equipment to the
2. In Apple’s “Summary of Significant Accounting Policies” (Note 1:
Property, Plant and Equipment) it discloses estimated useful lives by
3. The change in total property and equipment before accumulated
depreciation for the year ended September 29, 2012, is an increase of
$10,119 million ($21,887 – $11,768). In comparison, according to the
4. Total asset turnover for year ended ($ millions):
9/29/2012: = 1.07 times
5. Solution depends on the financial statement data obtained.
($116,371+ $75,183)/2
$156,508
($176,064 + $116,371)/2
© 2015 by McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.
Solutions Manual, Chapter 8
37
1. Total asset turnover for Apple ($ millions)
Current Year: = 1.07 times
2. Each dollar of Apple’s assets produces $1.07 and $1.13 in net sales for
the current and prior year, respectively. Each dollar of Google’s assets
produces $0.60 and $0.58 in net sales for the current year and prior
$108,249
$156,508
($176,064 + $116,371)/2
($72,574 + $57,851)/2