Financial Reporting and Analysis (7th Ed.)
Chapter 10 Solutions
Long-Lived Assets and Depreciation
Exercises
Exercises
E10-1. Capitalizing costs (LO 10-2)
Phoenix may capitalize the following costs to the Machine account:
The finder’s fee, list price, transportation fee and installation fee are
all necessary to get the asset (machinery) into place and position for
E10-2. Determining depreciation expense—multiple methods (LO
10-7)
Requirement 1:
Requirement 3:
Requirement 5:
E10-3. Capitalizing costs subsequent to acquisition (LO 10-2)
Requirement 1:
The following costs are capitalized to the building:
GAAP requires a company to capitalize expenditures that extend an
asset’s useful life, increase its capacity or efficiency, or cause any
The painting, carpet, and repair costs are expensed since they do
Requirement 2:
New carrying value of the building:
E10-4. Determining depreciation expense – multiple methods (LO
10-7)
Requirement 1:
Requirement 2:
Requirement 3:
Requirement 4:
Denominator = 6 x (6 + 1) ÷ 2 = 21
E10-5. Determining depreciation base – straight-line depreciation (LO
10-2, LO 10-7) (AICPA adapted)
First determine the book value of the machine at the beginning of
2017. Given that the machine has been used for 10 years and has a
The $5,000 overhaul increases the value of the machine by $5,000,
so the new book value is $20,000 ($15,000 + $5,000). The overhaul
$20,000/15 years = $1,333
Depreciation expense for 2017 is $1,333.
E10-6. Exchanging assets (LO 10-9)
Entry by Reading Phillies:
E10-7. Determining asset cost and depreciation expense –
straight-line (LO 10-2, LO 10-7) (AICPA adapted)
First, we must find the total cost of the machine.
Now we can find depreciation expense for 2012 and 2013:
$62,800/20 years = $3,140
Next, we need to determine the depreciation base of the machine in
January 2017. The machine has been depreciated for two years, so:
The accessories add $3,600 to the machine’s value, so the
The accessories did not add useful life or more salvage value. The
remaining useful life of the machine is 18 years (20 – 2). To find
straight-line depreciation expense, we divide the depreciation base
by the remaining useful life.
E10-8. Buying assets with a note (LO 10-2)
The plant assets should be recorded at the discounted present
value of the payments:
Discount Factor Discounted
Present
Payment date Amount at 10% Value
CR Cash
E10-9. Determining retirement obligation (LO 10-6)
(AICPA adapted)
Depletion rate = (book value – salvage value) ÷ recoverable units
E10-10. Capitalizing interest (LO 10-2)
(AICPA adapted)
The avoidable interest during 2017 is:
E10-11. Capitalizing interest (LO 10-2)
(AICPA adapted)
Requirement 1:
The interest on weighted average accumulated expenditures is the
amount of avoidable interest. Since the avoidable interest
($60,000) is less than the interest actually accrued ($85,000), only
Requirement 2:
The interest on weighted average accumulated expenditures is the
amount of avoidable interest. Since the avoidable interest
E10-12. Analyzing changes in asset account balances – straight-line
(LO 10-3, LO 10-7) (AICPA adapted)
To determine the amount debited in 2017, we reconstruct the
accumulated depreciation T-account:
Accumulated Depreciation
E10-13. Identifying depreciation expense patterns – SL, DDB, and SYD
(LO 10-7)
(AICPA adapted)
Line II corresponds to the sum-of-the-years’-digits method, and
E10-14. Amortizing intangibles (LO 10-4)
(AICPA adapted)
First, determine the book value of the trademark at 1/1/17:
December 31, 2013 2014 2015 2016
Amortization amount
The trademark has been amortized for four years so it has 12
$360,000/12 years = $30,000
E10-15. Amortizing intangibles (LO 10-4)
Find the book value of the patent at 12/31/17. The patent is
amortized over its useful life (10 yrs.) instead of its valid legal life
(15 yrs.) because the useful life is shorter.
December 31, 2014 2015 2016 2017
Amortization amount
On December 31, 2017 the patent has a book value of $54,000. If
the product is permanently withdrawn from the market, then the
The total charge to income in 2017 is $63,000, i.e., $54,000 +
$9,000.
E10-16. Accounting for R&D cost (LO 10-4)
All of the costs should be expensed as research and development
for 2017.
E10-17. Accounting for R&D cost (LO 10-4)
Costs incurred in Ball Labs that will not be reimbursed by the
governmental unit should be expensed as research and
development. The computation follows:
Ball should expense $1,380,000 as research and development
for 2017.
E10-18. Accounting for software development costs (LO 10-4)
Requirement 1:
Requirement 2:
During 2017, Pearl should expense one-half of the costs as R&D
and should capitalize the remaining one-half of the costs as
“Capitalized Computer Software Costs” in accordance with (FASB
E10-19. Determining depletion expense with asset retirement
obligation – units-of-production (LO 10-6, LO 10-7)
(AICPA adapted)
To determine the depletion base, we need to add together the
costs associated with the mine and subtract any salvage value.
Next we need to find the depletion cost per unit, computed below:
$2,880,000
1,200,000
removed
Knowing the depletion cost per unit and the number of units (tons)
removed, we can solve for depletion expense: