Problem 11–1
Requirement 1
Determine useful life:
Determine age of assets:
Double-declining balance in 4th year of life:
Year 1 (2015) $200,000 × 10% = $20,000
Requirement 2
Cost
Depreciation to date, SL 3 years (2015–2017)
Undepreciated cost as of 1/1/16
A disclosure note reports the effect of the change on net income and earnings
per share along with clear justification for changing depreciation methods.
PROBLEMS
Problem 11–2
Requirement 1
CORD COMPANY
Analysis of Changes in Plant Assets
For the Year Ending December 31, 2018
Balance Balance
12/31/17 Increase Decrease 12/31/18
Land $ 175,000 $ 312,500 [1] $ — $ 487,500
Land improvements — 192,000 — 192,000
Buildings 1,500,000 937,500 [1] — 2,437,500
Explanations of Amounts:
[1] Plant facility acquired from King 1/6/2018—allocation to Land and
Building:
Allocation in proportion to appraised values at date of exchange:
% of
Amount Total
[2] Machinery and equipment purchased 7/1/2018:
Invoice cost $325,000
Problem 11–2 (continued)
Requirement 2
CORD COMPANY
Depreciation and Amortization Expense
For the Year Ended December 31, 2018
Land Improvements:
Cost $192,000
Buildings:
150% declining balance rate:
Automobiles and trucks:
Book value, 1/1/2018 ($172,000 – 100,325) $71,675
Deduct 1/1/2018 book value of truck sold
Problem 11–2 (concluded)
Leasehold improvements:
Note: the amortization period was originally over the shorter of the asset life (8
years) or the lease (6 years). Three years have passed. The lease will end in 2024
but the life will end in 2022. The new amortization period is thus 5 years.
Problem 11–3
PELL CORPORATION
Depreciation
For the Year Ended December 31, 2018
Land improvements:*
Building:
Machinery and Equipment:
Balance, 12/31/2017 $1,158,000
Straight-line rate (1 ÷ 10 years) × 10 % 115,800
Automobiles:
*The repaving of the parking lots is considered a repair that doesn’t provide future
benefits beyond those originally anticipated.
Problem 11–4
1. Depreciation for 2016 and 2017.
December 31, 2016
…………………….Accumulated depreciation—equipment
December 31, 2017
…………………….Accumulated depreciation—equipment
2. The year 2018 expenditure.
January 4, 2018
……………………………………………………………………..Cash
3. Depreciation for the year 2018.
December 31, 2018
…………………….Accumulated depreciation—equipment
Calculation of annual depreciation after the estimate change:
Cost
New depreciable base
New annual depreciation
Problem 11–5
(1) $65,000
Allocation in proportion to appraised values at date of exchange:
% of
Amount Total
(2) $747,500 [From (1)]
Same as prior year, since method used is straight line.
(6) None No depreciation before use.
Fair value.
Present value of an annuity due of $1: n = 11, i = 8% (from Table 6)
Problem 11–6
Requirement 1
Building:
Machinery:
Equipment:
Requirement 2
(1)
June 29, 2019
Problem 11–6 (concluded)
(2)
June 29, 2019
Cash…………………………………………………………………….. 80,000
Accumulated depreciation on machinery sold:
Requirement 3
Building:
Machinery:
Equipment: