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E10-6 Determine depreciation for partial periods
Rottino Company purchased a new machine on October 1, 2017, at a cost of $150,000.
The company estimated that the machine will have a salvage value of $12,000. The
machine is expected to be used for 10,000 working hours during its 5-year life.
Instructions
Compute the depreciation expense under the following methods for the year indicated.
(a) Straight-line for 2017.
(b) Units-of-activity for 2017, assuming machine usage was 1,700 hours.
(c) Declining-balance using double the straight-line rate for 2017 and 2018.
NOTE: Enter a number in cells requesting a value; enter either a number or a formula in cells with a "?" .
(a) Straight-line method
Cost Value
Less: Salvage value Value
Depreciable cost ?
Useful life (years) Value
Annual depreciation ?
2017 Depreciation:
Annual Depreciation Value
Months machine in use Value
2017 partial year depreciation ?
(b) Units-of-activity method
Cost Value
Less: Salvage value Value
Depreciable cost ?
Useful life (hours) Value
Depreciable cost/hour ?
2017 Depreciation:
Depreciable cost/hour Value
Hours machine used Value
2017 depreciation expense ?
(c) Declining-balance method:
Straight-line rate Value
Double the straight-line rate Value
2017 Depreciation:
Cost Value
Double the straight-line rate ?
2017 full year depreciation Value
Number of months in use Value
2017 partial year depreciation ?
2018 Depreciation:
Cost Value
Less: accumulated depreciation, 2017 Value
Ending book value, 2017 ?
Beginning book value, 2018 Value
Double the straight-line rate Value
2018 depreciation expense ?
After you have completed the requirements of E10-6, consider the additional questions.
Answers are on the other tab in this file.
1 Assume the cost of the asset changed to $180,000. Recompute straight-line depreciation for 2017.
2Assume that the cost of the asset changed to $180,000 and the machine usage for 2017
changed to 2,100 hours. Recompute 2017 depreciation using the units-of-activity method.
3. Assume that the cost of the asset changed to $180,000. Recompute 2017 and 2018 declining-balance
depreciation using double the straight line rate.
E10-6 Solution
(a) Straight-line method
Cost $150,000
Less: Salvage value 12,000
Depreciable cost 138,000
(b) Units-of-activity method
Cost $150,000
Less: Salvage value 12,000
Depreciable cost 138,000
(c) Declining-balance method:
Straight-line rate 20%
Double the straight-line rate 40%
2017 Depreciation:
Cost $150,000
Double the straight-line rate 40%
2018 Depreciation:
Cost $150,000
Less: accumulated depreciation, 2017 15,000
Ending book value, 2017 $135,000
E10-6 Solution to additional questions
1 Assume the cost of the asset changed to $180,000. Recompute straight-line depreciation for 2017.
(a) Straight-line method
Cost $180,000
Less: Salvage value $12,000
Depreciable cost $168,000
2Assume that the cost of the asset changed to $180,000 and the machine usage for 2017
changed to 2,100 hours. Recompute 2017 depreciation using the units-of-activity method.
(b) Units-of-activity method
Cost $180,000
Less: Salvage value 12,000
3. Assume that the cost of the asset changed to $180,000. Recompute 2014 and 2015 declining-balance
depreciation using double the straight line rate.
(c) Declining-balance method:
Straight-line rate 20%
Double the straight-line rate 40%
2018 Depreciation:
Cost $180,000
Less: accumulated depreciation, 2017 18,000
Ending book value, 2017 $162,000
P10-1A Determine acquisition costs of land and building
Venable Company was organized on January 1. During the first year of operations, the following
plant asset expenditures and receipts were recorded in random order.
Debit
1. Cost of filling and grading the land $4,000
2. Full payment to building contractor 690,000
3. Real estate taxes on land paid for the current year 5,000
4. Cost of real estate purchased as a plant site
(land $100,000 and building $45,000) 145,000
5. Excavation costs for new building 35,000
6. Architect's fees on building plans 10,000
7. Accrued real estate taxes paid at time of purchase of real estate 2,000
8. Cost of parking lots and driveways 14,000
9. Cost of demolishing building to make land suitable for construction
of new building 25,000
$930,000
Credit
10. Proceeds from salvage of demolished building $3,500
Instructions
Analyze the foregoing transactions using the following column headings. Insert the number of
each transaction in the Item space, and insert the amounts in the appropriate columns. For
amounts entered in the Other Accounts column, also indicate the account titles.
Item Land Buildings Other Accounts
NOTE: Enter a number in cells requesting a value; enter either a number or a formula in cells with a "?" .
Insert the amounts in the appropriate columns. For amounts entered in the Other Accounts
column, also indicate the account titles.
Item Land Building
1Value
2Value
3Value
4Value
5Value
6Value
7Value
8Value
9Value
10 Value
? ?
After you have completed the requirements of P10-1A, consider the additional questions.
Answers are on the other tab in this file.
1 Assume the proceeds from salvage of demolished building increased to $8,000.
How does this change the total cost of land or building?
2Assume that real estate taxes on land for the current year increased to $6,000.
How will this affect the cost of land?
Other Accounts
Account
Account
P10-1A Solution
Insert the amounts in the appropriate columns. For amounts entered in the Other Accounts
column, also indicate the account titles.
Item Land Building
1 $4,000
2 $690,000
3 $5,000
4 145,000
Other Accounts
Property Tax Expense
P10-1A Solution to additional problems
1 Assume the proceeds from salvage of demolished building increased to $8,000.
How does this change the total cost of land or building?
Item Land Building
1 $4,000
2 $690,000
3 $5,000
4 145,000
5 35,000
2Assume that real estate taxes on land for the current year increased to $6,000.
How will this affect the cost of land?
Item Land Building
1 $4,000
2 $690,000
3$6,000
Property Tax Expense
Other Accounts
Other Accounts
Property Tax Expense
P10-5A Journalize a series of equipment transactions related to purchase, sale, retirement, and depreciation
At December 31, 2017, Grand Company reported the following as plant assets.
Land $4,000,000
Buildings $28,500,000
Less: Accumulated depreciation - buildings 12,100,000 16,400,000
Equipment 48,000,000
Less: Accumulated depreciation - equipment 5,000,000 43,000,000
Total plant assets $63,400,000
During 2018, the following selected cash transactions occurred.
April 1 Purchased land for $2,130,000.
May 1 Sold equipment that cost $750,000 when purchased on January 1, 2014. The
equipment was sold for $450,000.
June 1 Sold land purchased on June 1, 2008 for $1,500,000. The land cost $400,000.
July 1 Purchased equipment for $2,500,000.
Dec. 31 Retired equipment that cost $500,000 when purchased on December 31, 2008.
No salvage value was received.
Instructions
(a) Journalize the above transactions. The company uses straight-line depreciation for
buildings and equipment. The buildings are estimated to have a 50-year life and no
salvage value. The equipment is estimated to have a 10-year useful life and no
salvage value. Update depreciation on assets disposed of at the time of sale or
retirement.
(b) Record adjusting entries for depreciation for 2018.
(c ) Prepare the plant assets section of Grand's balance sheet at December 31, 2018.
NOTE: Enter a number in cells requesting a value; enter either a number or a formula in cells with a "?" .
(a) April 1 Value Value
May 1 Value Value
May 1 Value
Value Value
Value
June 1 Value Value
Value
July 1 Value Value
Account
Account
Account
Account
Account
Account
Account
Account
Account
Account
Account
Account
Account
Dec. 31 Value Value
Dec. 31 Value Value
(b) Dec. 31 Value Value
Dec. 31 Value Value
(c)
Plant Assets Value
Land
Buildings Value
Less: Accumulated depreciation -buildings Value ?
Equipment Value
Less: Accumulated depreciation -equipment Value ?
Total plant assets ?
After you have completed the requirements of P10-5A, consider the additional questions.
Answers are on the other tab in this file.
1
Assume the sales proceed from the May 1 sale of equipment changed to $410,000.
What is the impact on the journal entry on the Equipment account?
2. Suppose the cost of the equipment purchased on July 1 changed to $2,150,000.
What is the impact on the journal entry recording the transaction, the adjusting entry
to record depreciation and the plant assets section of the balance sheet?
December 31, 2018
Account
Account
GRAND COMPANY
Partial Balance Sheet
Account
Account
Account
Account
Account
Account
P10-5A Solution
(a) April1 2,130,000 2,130,000
May 1 25,000
25,000
June 1 1,500,000
400,000
1,100,000
July 1 2,500,000
2,500,000
Cash
Land
Gain on Disposal of Plant Assets
Equipment
Cash
Land
Cash
Depreciation Expense
Accumulated Depreciation -
Equipment
(b) Dec. 31 570,000
570,000
Cost $28,500,000 X 1/50 = $570,000
(c)
*See T-accounts which follow.
Bal. 4,000,000 June 1 400,000 Bal. 28,500,000
Apr. 1 2,130,000 Bal. 28,500,000
Bal. 5,730,000
Land
Buildings
December 31, 2018
Partial Balance Sheet
Depreciation Expense
Accumulated Depreciation - Buildings
GRAND COMPANY
May 1 325,000 Bal. 5,000,000
Dec.31 500,000 May 1 25,000
P10-5A Solution to the additional questions
1 Assume the sales proceed from the May 1 sale of equipment changed to $410,000.
What is the impact on the journal entry on the Equipment account?
May 1 410,000
325,000
2. Suppose the cost of the equipment purchased on July changed to $2,150,000. What is the impact
on the journal entry recording the transaction, the adjusting entry to record depreciation and
and the plant assets section of the balance sheet?
July 1 2,150,000 2,150,000
Dec. 31 4,782,500
4,782,500
Plant Assets*
Land $5,730,000
Buildings $28,500,000
Accumulated Depreciation -
GRAND COMPANY
Partial Balance Sheet
December 31, 2018
Cash
Accumulated Depreciation -
Depreciation Expense
Equipment
Cash
Bal. 48,000,000 May 1 750,000 May 1 325,000 Bal. 5,000,000
July 1 2,150,000 Dec. 31 500,000 Dec.31 500,000 May 1 25,000
Equipment
Accumulated Depreciation -Equipment
P10-6A Record disposals
Ceda Co. has equipment that cost $80,000 and that has been depreciated $50,000.
Instructions
Record the disposal under the following assumptions.
(a) It was scrapped as having no value.
(b) It was sold for $21,000.
(c ) It was sold for $31,000.
NOTE: Enter a number in cells requesting a value; enter either a number or a formula in cells with a "?" .
(a) Cost Value
Less: accumulated depreciation Value
Book Value ?
Journal entry:
Account Value
Account Value Value
(b) Cost Value
Less: accumulated depreciation Value
Book Value ?
Sales Proceed Value
Loss on disposal ?
Journal entry:
Account Value
Account Value
Account Value Value
(c ) Cost Value
Less: accumulated depreciation Value
Book Value ?
Sales Proceed Value
Gain on disposal ?
Journal entry:
Account Value
Account Value Value
Value
After you have completed the requirements of P10-6A, consider the additional questions.
Answers are on the other tab in this file.
1. Assume the accumulated depreciation on the asset was $65,000. What is the impact on the journal entry in (b) above?
2. Assume the asset was sold for $27,500. What is the impact on the journal entry in (c ) above?
Account
Account
Account
Account
P10-6A Solution
(a) Cost $80,000
Less: accumulated depreciation 50,000
(b) Cost $80,000
Less: accumulated depreciation 50,000
Book Value 30,000
(c ) Cost $80,000
Less: accumulated depreciation 50,000
Book Value 30,000
Problem 10-6A Solution to additional questions
1. Assume the accumulated depreciation on the asset was $65,000. What is the impact on the journal entry in (b) above?
(b) Cost $80,000
Less: accumulated depreciation 65,000
Book Value 15,000
2. Assume the asset was sold for $27,500. What is the impact on the journal entry in (c ) above?
(c) Cost $80,000
Less: accumulated depreciation 50,000
Book Value 30,000
