CHAPTER 10
SOLUTIONS TO EXERCISES—SET B
EXERCISE 10-1B
(a) Under the historical cost principle, the acquisition cost for a plant
asset includes all expenditures necessary to acquire the asset and
make it ready for its intended use. For example, the cost of factory
(b) 1. Equipment
2. Equipment
3. Land
EXERCISE 10-2B
1. Equipment
2. Equipment
3. Equipment
EXERCISE 10-3B
(a) Cost of land
Cash paid ……………………………………………………………….. $75,000
Net cost of removing warehouse
($6,400 – $1,200) ………………………………………………….. 5,200
(b) The architect’s fee ($5,800) should be debited to the Buildings account.
EXERCISE 10-4B
1. True.
2. False. Depreciation enables companies to properly match the expense
of using buildings and equipment to the revenues they help earn.
3. True.
4. False. Depreciation applies to three classes of plant assets: land improve–
ments, buildings, and equipment.
EXERCISE 10-5B
(a) Depreciation cost per unit is $1.80 per mile
[($188,000 – $8,000) ÷ 100,000].
(b)
Computation
End of Year
Year
X
Depreciation
Cost /Unit
=
Annual
Depreciation
Expense
Accumulated
Depreciation
Book
Value
2017
$1.80
$48,600
$ 48,600
$139,400
EXERCISE 10-6B
(a) Straight-line method:
$145,000 –$25,000
5
= $24,000 per year.
(b) Units-of–activity method:
$145,000 –$25,000
20,000
= $6.00 per hour.
(c) Declining-balance method:
EXERCISE 10-7B
(a) (1) 2017: ($50,000 – $4,000)/8 = $5,750
2018: ($50,000 – $4,000)/8 = $5,750
(2) ($50,000 – $4,000)/100,000 = $0.46 per mile
(b) (1) Depreciation Expense …………………………………… 5,750
Accumulated Depreciation—Equipment ……….. 5,750
EXERCISE 10-8B
(a)
Type of Asset
Building
Warehouse
Book value, 1/1/17
Less: Salvage value
$859,000
45,000
$162,000
12,000
(b) Dec. 31 Depreciation Expense ………………………… 18,500
EXERCISE 10-9B
Jan. 1 Accumulated Depreciation—Equipment ………. 75,000
Machinery …………………………………………… 75,000
June 30 Depreciation Expense ………………………………… 3,500
Accumulated Depreciation—
Equipment ($35,000 X 1/5 X 6/12) ………. 3,500
EXERCISE 10-10B
(a) Cash ………………………………………………………………….. 38,000
Accumulated Depreciation—Equipment
(b) Depreciation Expense
[($70,000 – $10,000) X 1/5 X 4/12]………………………. 4,000
Accumulated Depreciation—Equipment ………. 4,000
EXERCISE 10-10B (Continued)
(c) Cash ………………………………………………………………… 23,000
Accumulated Depreciation—Equipment ……………… 36,000
Loss on Disposal of Plant Assets ………………………. 11,000
Equipment ………………………………………………….. 70,000
EXERCISE 10-11B
(a) Dec. 31 Inventory …………………………………………… 75,000
Accumulated Depletion
(100,000 X $.75) ……………………….. 75,000
EXERCISE 10-12B
Dec. 31 Amortization Expense ……………………………. 16,000
Patents ($120,000 X 1/5 X 8/12) ………… 16,000
EXERCISE 10-13B
1/2/17 Patents …………………………………………………. 840,000
Cash ……………………………………………… 840,000
4/1/17 Goodwill ………………………………………………. 450,000
Cash ……………………………………………… 450,000
(Part of the entry to record
purchase of another company)
Ending balances, 12/31/17:
Patents = $720,000 ($840,000 – $120,000).
EXERCISE 10-14B
*EXERCISE 10-15B
(a) Equipment (new) ……………………………………………….. 54,000
Accumulated Depreciation—Equipment (old) ……… 42,000
Loss on Disposal of Plant Assets ………………………. 7,000
Equipment (old) ………………………………………….. 74,000
Cash ………………………………………………………….. 29,000
Cost of old trucks $74,000
Less: Accumulated depreciation 42,000
(b) Equipment (new) ……………………………………………….. 25,000
Accumulated Depreciation—Equipment (old) ……… 14,000
Gain on Disposal …………………………..……………. 2,000
Equipment (old) ………………………………………….. 20,000
Cash ………………………………………………………….. 17,000
*EXERCISE 10-16B
(a) Equipment (new) ……………………………………………….. 8,000
Loss on Disposal of Plant Assets ………………………. 2,000
Accumulated Depreciation—Equipment (old) ……… 25,000
Equipment (old) ………………………………………….. 35,000
(b) Equipment (new) ……………………………………………….. 8,000
Accumulated Depreciation—Equipment (old) ……… 16,000
Equipment (old) ………………………………………….. 21,000
Gain on Disposal of Plant Assets ………………… 3,000
SOLUTIONS TO PROBLEMS—SET C
PROBLEM 10-1C
Item
Land
Buildings
Other Accounts
1
2
3
4
($ 2,000)
$600,000
22,000
$ 3,000 Property Taxes Expense
PROBLEM 10-2C
(a)
Year
Computation
Cumulative
12/31
MACHINE 1
2013
2014
2015
2016
$ 80,000 X 10% = $8,000
$ 80,000 X 10% = $8,000
$ 80,000 X 10% = $8,000
$ 80,000 X 10% = $8,000
$ 8,000
16,000
24,000
32,000
MACHINE 2
$30,000
MACHINE 3
(b)
Year
Depreciation Computation
Expense
MACHINE 2
(1)
2015
$120,000 X 25% X 9/12 = $22,500
$22,500