E9-20 Computing depreciation—three methods
Learning Objective 2
1. Double-declining-balance, 12/31/19, Exp. $8,250
Crispy Fried Chicken bought equipment on January 2, 2018, for $33,000. The equipment was
expected to remain in service for four years and to operate for 6,750 hours. At the end of the
equipment’s useful life, Crispy’s estimates that its residual value will be $6,000. The equipment
operated for 675 hours the first year, 2,025 hours the second year, 2,700 hours the third year, and
1,350 hours the fourth year.
E9-20, cont.
Requirements
1. Prepare a schedule of depreciation expense, accumulated depreciation, and book value per
year for the equipment under the three depreciation methods: straight-line,
units-of-production, and double-declining-balance. Show your computations. Note: Three
depreciation schedules must be prepared.
2. Which method tracks the wear and tear on the equipment most closely?
SOLUTION
Requirement 1
E9-21 Changing an asset’s useful life and residual value
Learning Objective 2
Yr. 16 $14,350
Salem Hardware Consultants purchased a building for $540,000 and depreciated it on a
straight-line basis over a 40-year period. The estimated residual value is $100,000. After using
the building for 15 years, Salem realized that wear and tear on the building would wear it out
before 40 years and that the estimated residual value should be $88,000. Starting with the 16th
year, Salem began depreciating the building over a revised total life of 35 years using the new
residual value. Journalize depreciation expense on the building for years 15 and 16.
SOLUTION
E9-22 Recording partial-year depreciation and sale of an asset
Learning Objectives 2, 3
Depr. Exp. $3,400
On January 2, 2017, Comfy Clothing Consignments purchased showroom fixtures for $17,000
cash, expecting the fixtures to remain in service for five years. Comfy has depreciated the
fixtures on a double-declining-balance basis, with zero residual value. On October 31, 2018,
Comfy sold the fixtures for $7,600 cash. Record both depreciation expense for 2018 and sale of
the fixtures on October 31, 2018.
SOLUTION
E9-23 Recording partial-year depreciation and sale of an asset
Learning Objectives 2, 3
Loss $(2,000)
On January 2, 2016, Pet Spa purchased fixtures for $37,800 cash, expecting the fixtures to
remain in service for six years. Pet Spa has depreciated the fixtures on a straight-line basis, with
$9,000 residual value. On May 31, 2018, Pet Spa sold the fixtures for $24,200 cash. Record both
depreciation expense for 2018 and sale of the fixtures on May 31, 2018.
SOLUTION
E9-24 Journalizing natural resource depletion
Learning Objective 4
$1.30 per ton
Cannon Mountain Mining paid $462,300 for the right to extract mineral assets from a
400,000-ton deposit. In addition to the purchase price, Cannon also paid a $900 filing fee, a
$1,800 license fee to the state of Nevada, and $55,000 for a geological survey of the property.
Because Cannon purchased the rights to the minerals only and did not purchase the land, it
expects the asset to have zero residual value. During the first year, Cannon removed and sold
50,000 tons of the minerals. Make journal entries to record (a) purchase of the minerals (debit
Minerals), (b) payment of fees and other costs, and (c) depletion for the first year.
SOLUTION
E9-25 Handling acquisition of patent, amortization, and change in useful life
Learning Objectives 2, 5
2. Amort. Exp. $50,000
Melbourn Printers (MP) manufactures printers. Assume that MP recently paid $200,000 for a
patent on a new laser printer. Although it gives legal protection for 20 years, the patent is
expected to provide a competitive advantage for only eight years.
Requirements
1. Assuming the straight-line method of amortization, make journal entries to record (a) the
purchase of the patent and (b) amortization for the first full year.
2. After using the patent for four years, MP learns at an industry trade show that another
company is designing a more efficient printer. On the basis of this new information, MP
decides, starting with Year 5, to amortize the remaining cost of the patent over two
remaining years, giving the patent a total useful life of six years. Record amortization for
Year 5.
SOLUTION
Requirement 1
E9-25, cont.
Requirement 2
E9-26 Measuring and recording goodwill
Learning Objective 5
1. Goodwill $1,000,000
Princeton has acquired several other companies. Assume that Princeton purchased Kelleher for
$9,000,000 cash. The book value of Kelleher’s assets is $19,000,000 (market value,
$20,000,000), and it has liabilities of $12,000,000 (market value, $12,000,000).
Requirements
1. Compute the cost of the goodwill purchased by Princeton.
2. Record the purchase of Kelleher by Princeton.
SOLUTION
Requirement 1
E9-27 Computing asset turnover ratio
Learning Objective 6
Blackerby Photo reported the following figures on its December 31, 2018, income statement and
balance sheet:
Net sales $ 441,000
Dec. 31,
2018
Dec. 31,
2017
Cash $ 31,000 $ 30,000
Accounts Receivable 68,000 65,000
Merchandise Inventory 80,000 79,000
Prepaid Expenses 16,000 5,000
Property, plant, and equipment,
net
175,000 18,000
Compute the asset turnover ratio for 2018 Round to two decimal places.
SOLUTION