9-1
CHAPTER 9
LONG-TERM ASSETS: FIXED AND INTANGIBLE
DISCUSSION QUESTIONS
1. a. O’Neil Office Supplies: Property, plant, and equipment or Fixed assets
depreciation account. Revenue expenditures are recorded as expenses and are costs that benefit only the
current period and are incurred for normal maintenance and repairs of fixed assets.
8. a. An accelerated depreciation method is most appropriate for situations in which the decline in
productivity or earning power of the asset is proportionately greater in the early years of use than in
9. a. No, the accumulated depreciation for an asset cannot exceed the cost of the asset. To do so would
create a negative book value, which is meaningless.
10. a. The cost of a patent should be amortized over the shorter of its legal life or years of usefulness.
CHAPTER 9 Long-Term Assets: Fixed and Intangible
9-2
BASIC EXERCISES
BE 9–1
BE 9–2
BE 9–3
BE 9–4
BE 9–5
Feb.
14
Accumulated Depreciation—Delivery Van
2,300
Cash
2,300
14
Delivery Van
450
Cash
450
CHAPTER 9 Long-Term Assets: Fixed and Intangible
BE 9–6
b. $20,625 gain, computed as follows:
c.
Dec.
31
Cash
480,000
Accumulated Depreciation—Equipment
140,625
Equipment
600,000
Gain on Sale of Equipment
20,625
BE 9–7
c.
Dec.
31
Depletion Expense
32,760,000
Accumulated Depletion
32,760,000
Depletion of mineral deposit.
Dec.
Amortization Expense—Patents
Patents
Amortized patent rights
c.
Dec.
Loss from Impaired Goodwill
6,000,000
Goodwill
6,000,000
BE 9–8
a.
April
1
Patent
1,500,000
Cash
1,500,000
Acquired patent.
CHAPTER 9 Long-Term Assets: Fixed and Intangible
9-5
EXERCISES
Ex. 9–1
Ex. 9–2
Ex. 9–3
Purchase price of land ($90,000 + $50,000) …………………………..
$ 140,000
Legal fees ………………………………………………………………………….
$ 1,750
Delinquent taxes ……………………………………………………….
25,000
Demolition of building ……………………………………………………….
9,000
35,750
Total costs …………………………………………………………………………….
$ 175,750
Salvage of materials ……………………………………………………….
(1,000)
Cost of land to be reported …………………………………………………….
$ 174,750
Ex. 9–4
a. No. The $65,500,000 represents the original cost of the equipment. Its
Ex. 9–5
Ex. 9–6
Ex. 9–7
hour per ondepreciati $3.70
hours 28,000
$16,400 – $120,000 =
150 hours at $3.70 = $555 depreciation for April
CHAPTER 9 Long-Term Assets: Fixed and Intangible
9-6
Ex. 9–8
a.
Depreciation rate per mile:
Truck No.
Rate per Mile
Miles Operated
Credit to
Accumulated
Depreciation
1
$0.26
21,000
$ 5,460
2
0.16
33,500
5,360
3
0.31
8,000
1,860
4
0.28
22,500
6,300
Total ………………………………………………………………………..
$18,980
Note: Mileage depreciation of $2,480 (31 cents 8,000) is limited to $1,860 for Truck 3,
which reduces the book value of the truck to $10,900, its residual value.
b.
Dec.
31
Depreciation Expense—Trucks
18,980
Accumulated Depreciation—Trucks
18,980
Truck depreciation.
Ex. 9–9
a.
$8,500 $85,000 of 10%
Year Second
$8,500 $85,000 of 10%
YearFirst
==
Ex. 9–10
CHAPTER 9 Long-Term Assets: Fixed and Intangible
9-7
Ex. 9–11
Ex. 9–12
Ex. 9–13
Ex. 9–14
Ex. 9–15
Mar.
20
Accumulated Depreciation—Delivery Truck
1,890
Cash
1,890
June
11
Delivery Truck
1,350
Cash
1,350
Nov.
30
Repairs and Maintenance Expense
55
Cash
55
CHAPTER 9 Long-Term Assets: Fixed and Intangible
9-8
Ex. 9–16
a.
Apr.
30
Carpet
18,000
Cash
18,000
b.
Dec.
31
Depreciation Expense—Carpet
800
Accumulated Depreciation—Carpet
800
Carpet depreciation
[($18,000 ÷ 15 years) 8 ÷ 12].
Ex. 9–17
b.
Apr.
1
Depreciation Expense—Equipment
3,300
Accumulated Depreciation—Equipment
3,300
Equipment depreciation
($13,200 3 ÷ 12).
1
Cash
105,800
Accumulated Depreciation—Equipment
69,300
Loss on Sale of Equipment
36,900
Equipment
212,000
Loss on sale of equipment = [($212,000 – $69,300) – $105,800] = $(36,900)
CHAPTER 9 Long-Term Assets: Fixed and Intangible
Ex. 9–18
c.
Year 4
Jan.
3
Cash
300,000
Accumulated Depreciation—Equipment
52,500
Loss on Sale of Equipment
22,500
Equipment
375,000
Loss on sale of equipment = $322,500 – $300,000 = $(22,500)
d.
Year 4
Jan.
3
Cash
325,000
Accumulated Depreciation—Equipment
52,500
Equipment
375,000
Gain on Sale of Equipment
2,500
Gain on sale of equipment = $325,000 – $322,500 = $2,500
Ex. 9–19
b.
Dec.
Depletion Expense
9,000,000
Accumulated Depletion
9,000,000
b.
Dec.
Amortization Expense—Patents
Patents
Amortized patent rights
CHAPTER 9 Long-Term Assets: Fixed and Intangible
9-10
Ex. 9–21
a. Property, plant, and equipment (in millions):
Current
Year
Preceding
Year
Land and buildings ………………………………………………….
$10,185
$6,956
Machinery, equipment, and internal-use software ……..
44,543
37,038
Other fixed assets ……………………………………………………
6,517
5,263
Total cost ………………………………………………………………..
$ 61,245
$ 49,257
Accumulated depreciation and amortization ……………..
(34,235)
(26,786)
Book value ……………………………………………………………..
$ 27,010
$ 22,471
A comparison of the book values of the current and preceding years indicates that they
increased. A comparison of the total cost and accumulated depreciation reveals that
Apple purchased $11,988 million ($61,245 – $49,257) of additional fixed assets, which was
offset by the additional depreciation expense of $7,449 million ($34,235 – $26,786) taken
during the current year.
b. We would expect Apple’s book value of fixed assets to increase during the year as its
sales increase. Although additional depreciation expense for the current year will reduce
Ex. 9–22
1. Fixed assets should be reported at cost and not replacement cost.
CHAPTER 9 Long-Term Assets: Fixed and Intangible
Appendix Ex. 9–23
a.
Price (fair market value) of new equipment …………………….
$ 275,000
Trade-in allowance of old equipment ……………………………..
(90,000)
Cash paid on the date of exchange ………………………………..
$ 185,000
b.
Fair market value (trade-in allowance) of old equipment ….
$ 90,000
Book value of old equipment …………………………………………
(68,000)
Gain on exchange of equipment …………………………………….
$ 22,000
or
Price (fair market value) of new equipment ……………………..
$ 275,000
Assets given up in exchange:
Book value of old equipment …………………………………….
$ 68,000
Cash paid on the exchange ………………………………………
185,000
(253,000)
Gain on exchange of equipment …………………………………….
$ 22,000
Appendix Ex. 9–24
a.
Price (fair market value) of new equipment …………………….
$ 275,000
Trade-in allowance of old equipment ……………………………..
(90,000)
Cash paid on the date of exchange ………………………………..
$ 185,000
b.
Fair market value (trade-in allowance) of old equipment ….
$ 90,000
Book value of old equipment …………………………………………
(108,000)
Gain on exchange of equipment …………………………………….
$ (18,500)
CHAPTER 9 Long-Term Assets: Fixed and Intangible
Appendix Ex. 9–25
a.
July
1
Depreciation Expense—Equipment
6,000
Accumulated Depreciation—Equipment
6,000
Equipment depreciation ($12,000 6 ÷ 12).
July
1
9,000
a.
Oct.
1
Accumulated Depreciation—Truck
5,250
Oct.
1
8,250
CHAPTER 9 Long-Term Assets: Fixed and Intangible
9-13
PROBLEMS
Prob. 9–1A
1.
Item
Land
Land
Improvements
Building
Other
Accounts
a.
$ 2,500
b.
340,000
c.
15,500
d.
5,000
e.
(4,000)*
f.
29,000
g.
$ 60,000
h.
6,000
i.
12,000
j.
$(900,000)*
k.
5,500
l.
$32,000
m.
11,000
n.
2,000
o.
2,500
p.
(7,500)*
q.
800,000
r.
34,500
s.
(500)*
2.
$400,000
$45,000
$ 900,000
3. Land used as a plant site does not lose its ability to provide services; thus, it is not
4. Because land improvements are depreciated, depreciation expense of $1,200
CHAPTER 9 Long-Term Assets: Fixed and Intangible
9-14
Prob. 9–2A
1.
Depreciation Expense
Year
a. Straight-
Line
Method
b. Units-of–
Activity
Method
c. Double-
Declining-Balance
Method
Year 1
$22,500
$28,500
$48,000
Year 2
22,500
22,500
16,000
Year 3
22,500
16,500
3,500
Total
$67,500
$67,500
$67,500
Units-of-activity method:
($72,000 – $4,500) ÷ 18,000 hours = $3.75 per hour
3. Over the three-year life of the equipment, all three depreciation methods yield
CHAPTER 9 Long-Term Assets: Fixed and Intangible
Prob. 9–3A
a. Straight-line method:
Year 1: [($270,000 – $9,000) ÷ 3] 9 ÷ 12 ……………………………….. $65,250