EXERCISE 11.6 (Continued)
2nd full year [25% X ($304,000 – $76,000)] = $57,000
EXERCISE 11.7 (25–35 minutes)
Methods of Depreciation
Description
Date
Purchased
Cost
Residual
Life
Method
Accum. Depr.
to 2019
2020 Depr.
A
2/12/18
$159,000
$16,000
10
(a) SYD
$37,700
(b) $22,100
B
8/15/17
29,000
(d) 11,600
C
7/21/16
(e) 55,516
(f) 3,984
D
(g) 10/12/18
70,000
(h) 35,000
Machine A—Testing the methods
$ 7,150
[($159,000 – $16,000) ÷
10] X 1/2
($159,000 X .2* X 1/2)
10/55** X 1/2]
Sum-of-the-Years-Digits for 2019
$24,700
($143,000 X 10/55** X 1/2) +
($143,000 X 9/55** X 1/2)
Total Sum-of-the-Years-Digits
$37,700
**[10 x (10 + 1)] ÷ 2
SYD
($143,000 X 9/55* X 1/2) +
EXERCISE 11.7 (Continued)
Machine B—Computation of the cost
(c) Asset has been depreciated for 2 1/2 years using the straight-line
method.
(e) 2016’s depreciation is
$11,000
($88,000 X .25* X .5)
2017’s depreciation is
$19,250
($88,000 – $11,000) X .25*
2018’s depreciation is
$14,438
($88,000 – $30,250) X .25*
2019’s depreciation is
$10,828
($88,000 – $44,688) X .25*
(f) Using DDB, 2020 Depreciation is limited to $3,984, which results in the
carrying value of the machine equal to the residual value.
($88,000 – $28,500 – $55,516)
Machine D—Computation of Year Purchased
(g) First Half Year using SYD =
$25,000
$45,000
($150,000 X 5/15** X .5) +
(h) Using SYD, 2020 Depreciation is
[($219,000 – $69,000) X
EXERCISE 11.8 (20–25 minutes)
Old Machine
June 1, 2017
Purchase ………………………………..
€31,800
Freight ……………………………………
200
Installation ……………………………..
On June 1, 2018, debit the old machine for €2,700 and reduce the book
value by €900; the revised total cost is €34,300 (€32,500 + €2,700 – €900);
thus the revised annual depreciation charge is: (€34,300 – €2,500 –
€3,000) ÷ 9 = €3,200.
Book value, old machine, June 1, 2021:
[€34,300 – €3,000 – (€3,200 X 3)] = …………………………
Fair value ……………………………………………………………….
Loss on exchange …………………………………………………..
Cost of removal ………………………………………………………
(Note to instructor: The above computation is done to determine whether
there is a gain or loss from the exchange of the old machine with the new
machine and to show how the cost of removal might be reported.
New Machine
Basis of new machine
Cash paid (€35,000 – €20,000)
€15,000
Fair value of old machine
Installation cost
EXERCISE 11.9 (15–20 minutes)
(a)
Component
Cost
Estimated
Residual
Depreciable
Cost
Estimated
Life
Depreciation
per Year
A
¥ 40,500
¥ 5,500
¥ 35,000
10
¥ 3,500
B
33,600
4,800
28,800
9
3,200
C
36,000
3,600
32,400
8
4,050
D
19,000
1,500
17,500
7
2,500
E
2,500
21,000
6
3,500
Depreciation Expense ……………………………………………..
16,750
Accumulated Depreciation—Equipment …………..
(b)
Equipment ……………………………………………………….
40,000
Accumulated Depreciation—Equipment …………………..
19,200*
Loss on Disposal of Equipment …………………………..
Equipment ……………………………………………………..
Cash …………………………..…………………………..
EXERCISE 11.10 (10–15 minutes)
Sum-of-the–years’-digits =
8 X (8 + 1)
= 36
2
EXERCISE 11.11 (10–15 minutes)
(a) No correcting entry is necessary because changes in estimate are
handled in the current and prospective periods.
(b) Revised annual charge
Book value as of 1/1/2020 [$52,000 – (*$6,000 X 5)] = $22,000
Accumulated Depreciation—Equipment ……………
EXERCISE 11.12 (20–25 minutes)
(a) 1993–2002—(€1,900,000 – €60,000) ÷ 40 = €46,000/yr.
(d) Revised annual depreciation
Building
Book value: (€1,900,000 – €1,288,000*) …………..
€612,000
Residual value ………………………………………………
Remaining useful life ……………………………………..
Annual depreciation ………………………………………
€ 17,250
EXERCISE 11.12 (Continued)
Addition
Book value: (€470,000 – €270,000**) ……………….
€200,000
Residual value ……………………………………………….
Remaining useful life ……………………………………..
Annual depreciation ……………………………………….
EXERCISE 11.13 (15–20 minutes)
(a) $2,400,000 ÷ 40 = $60,000
(b)
Loss on Disposal of Plant Assets …………………………..
90,000
Accumulated Depreciation—Buildings
($180,000 X 20/40) ………………………………………………..
90,000
Buildings ……………………………………………………….
Buildings ……………………………………………………….
Cash …………………………..…………………………..
Note: The most appropriate entry would be to remove the old roof and
record a loss on disposal, because the cost of the old roof is given.
Another alternative would be to debit Accumulated Depreciation on the
EXERCISE 11.13 (Continued)
(c) No entry necessary.
(d) (Assume the cost of the old roof is removed)
Building ($2,400,000 – $180,000 + $300,000) …………………….
$2,520,000
Accumulated Depreciation ($60,000 X 20 – $90,000) …………
Remaining useful life ……………………………………………………..
Note to Instructor:
If it is assumed that the cost of the new roof is
debited to Accumulated Depreciation:
Book value of the building prior to the replacement
of roof $2,400,000 – ($60,000 X 20) = …………………………..
Cost of new roof ……………………………………………………………
Remaining useful life ……………………………………………………..
EXERCISE 11.14 (20–25 minutes)
(a)
Maintenance and Repairs Expense …………………………..
500
Equipment ………………………………………………………
500
(b)
The proper ending balance in the asset account is:
January 1 balance ……………………………….
¥133,000
Add: New equipment:
Purchases ……………………………………..
Freight …………………………..………………
700
Installation ……………………………………..
Less: Cost of equipment sold ………………
23,000
EXERCISE 11.14 (Continued)
(2) Sum-of-the-years’-digits: 10 + 9 + 8 + 7 + 6 + 5 + 4 + 3 + 2 + 1 = 55
EXERCISE 11.15 (25–35 minutes)
(a)
2014
2015–2020
Incl.
2021
Total
(1)
$240,000 – $21,000 = $219,000
$219,000 ÷ 12 = $18,250
per yr. ($50 per day)
$ 3,400
(2)
0
109,500
18,250
127,750
(3)
18,250
109,500
0
127,750
(4)
9,125
109,500
9,125
127,750
(5)
4/12 of $18,250
6,083
109,500
3/12 of $18,250
4,563
120,146
(6)
109,500
0
109,500
(b) The most accurate distribution of cost is given by methods 1 and 5 if it
is assumed that straight-line depreciation is satisfactory. Reasonable
EXERCISE 11.16 (10–15 minutes)
(a) [(€6,000 + €10,000 + €34,000) – 0] ÷ 10 = €5,000
(b)
Component
Tires
Transmission
EXERCISE 11.17 (10–15 minutes)
(a)
Component
Depreciation Expense
Building structure
€4,200,000 ÷ 60 =
€ 70,000
Building engineering
Building external works
700,000 ÷ 30 =
(b) Building Engineering ……………………………….. 2,300,000
Accumulated Depreciation—Building
EXERCISE 11.18 (10–15 minutes)
(a)
December 31, 2019
Loss on Impairment ………………………………………………..
1,000,000
Accumulated Depreciation—Equipment …………..
1,000,000
Cost …………………………………………
€9,000,000
Accumulated depreciation ………..
Carrying amount ………………………
Recoverable amount*………………..
(b)
December 31, 2020
Depreciation Expense ……………………………………………..
1,750,000
Accumulated Depreciation—Equipment …………..
1,750,000
New carrying amount ………………..
€7,000,000
Useful life …………………………………
(c) Accumulated Depreciation—Equipment ……………. 750,000
EXERCISE 11.19 (15–20 minutes)
(a)
Loss on Impairment ………………………………………………..
3,600,000
Accumulated Depreciation—Equipment …………..
3,600,000
Cost …………………………………………
€9,000,000
Accumulated depreciation ………..
Carrying amount ………………………
Less: Recoverable amount ……….
EXERCISE 11.19 (Continued)
(b) No entry necessary. Depreciation is not taken on assets intended to be
sold.
(c)
Accumulated Depreciation—Equipment …….
680,000
Recovery of Loss on Impairment ………
680,000
Fair value …………………………………………………
Less: Cost of disposal……………………………..
Carrying amount ………………………………………
Recovery of impairment loss …………………….
EXERCISE 11.20 (15–20 minutes)
(a)
December 31, 2019
Loss on Impairment …………………………………………………
200,000
Accumulated Depreciation—Equipment ……………
200,000
(b) It should be reported in the other income and expense section in the
income statement.
(c) Accumulated Depreciation—Equipment …………….. 45,000
EXERCISE 11.20 (Continued)
(d) To determine whether an asset is impaired, on an annual basis,
companies review the asset for indicators of impairment—that is, a
decline in the asset’s cash-generating ability through use or sale. If
EXERCISE 11.21 (10–15 minutes)
Cost per barrel of oil:
Initial payment =
€600,000
=
€2.40
250,000
Rental =
Premium, 5% of €65 =
EXERCISE 11.22 (15–20 minutes)
Depletion base: €1,250,000 + €90,000 – €100,000 + €200,000 = €1,440,000
EXERCISE 11.23 (15–20 minutes)
(a)
$850,000 + $170,000 + $40,000* – $100,000
= $.08 depletion per unit
12,000,000
*Note to instructor: The $40,000 should be depleted because it is an
environmental liability provision.
EXERCISE 11.24 (10–15 minutes)
During 2019
Land ………………………………………………………………… 300,000
Cash …………………………………………………………. 300,000
December 31, 2019
December 31, 2020
Unrealized Gain on Revaluation—Land ……………… 20,000
Loss on Impairment ………………………………………….. 20,000
Land ……………………………………………………….… 40,000**
**($280,000 – $320,000)
December 31, 2021
EXERCISE 11.25 (10–15 minutes)
Value at
December 31
Other
Comprehensive
Income
Accumulated Other
Comprehensive
Income
Recognized in
Net Income
2017
¥50,000
¥50,000
—
2018
2019
2020
2021
EXERCISE 11.26 (15–20 minutes)
December 31, 2017
Land (¥450,000 – ¥400,000) ……………………………….. 50,000
Unrealized Gain on Revaluation—Land ………. 50,000
December 31, 2018
December 31, 2019
Land (¥385,000 – ¥360,000) ……………………………….. 25,000
Recovery of Impairment Loss ……………………. 25,000
EXERCISE 11.27 (10–15 minutes)
(a) January 1, 2018
Equipment…………………………………………………….. 12,000
Cash ……………………………………………………… 12,000
(b) December 31, 2019
Depreciation Expense ……………………………………. 2,000
Accumulated Depreciation—Equipment ….. 2,000
EXERCISE 11.28 (15–20 minutes)
(a) Asset turnover:
EXERCISE 11.28 (Continued)
(c) Profit margin on sales:
£676
= 6.56%
£10,301
*EXERCISE 11.29 (20–25 minutes)
(a) December 31, 2017
Depreciation Expense ……………………………………. 1,000
Accumulated Depreciation—Equipment …… 1,000
EXERCISE 11.29 (Continued)
December 31, 2019
Depreciation Expense (¥8,800 ÷ 8) ………………….. 1,100
Accumulated Depreciation—Equipment ….. 1,100
December 31, 2020
Depreciation Expense ……………………………………. 1,100
Accumulated Depreciation—Equipment ….. 1,100
(b) Su would probably not use revaluation accounting for assets whose fair
value is lower than their carrying value. When the fair value of property and
TIME AND PURPOSE OF PROBLEMS
Problem 11.1 (Time 25–30 minutes)
Purpose—to provide the student with an opportunity to compute depreciation expense using a number of
Problem 11.2 (Time 25–35 minutes)
Purpose—to provide the student with an opportunity to compute depreciation expense using the following
Problem 11.3 (Time 40–50 minutes)
Purpose—to provide the student with an opportunity to compute depreciation expense using a number of
Problem 11.4 (Time 45–60 minutes)
Purpose—to provide the student with an opportunity to correct the improper accounting for trucks and
determine the proper depreciation expense. The student is required to compute separately the errors
arising in determining or entering depreciation or in recording transactions affecting Semitrucks.
Problem 11.5 (Time 25–35 minutes)
Purpose—to provide the student with a comprehensive problem related to property, plant, and equipment.
Problem 11.6 (Time 45–60 minutes)
Purpose—to provide the student with an opportunity to solve a complex problem involving a number of
Problem 11.7 (Time 30–35 minutes)
Purpose—to provide the student with the opportunity to solve a moderate problem involving a machinery
Problem 11.8 (Time 25–35 minutes)
Purpose—to provide the student with an opportunity to compute depreciation expense using a number of
Problem 11.9 (Time 15–25 minutes)
Purpose—to provide the student with an opportunity to analyze impairments for assets to be used and
assets to be disposed of.
Time and Purpose of Problems (Continued)
Problem 11.10 (Time 30–35 minutes)
Problem 11.11 (Time 15–20 minutes)
Purpose—to provide the student with a problem involving depletion and computation of profit or loss. The
student is asked to explain how to account for exploration and evaluation costs.
Problem 11.12 (Time 25–30 minutes)
Purpose—to provide the student with a problem involving the computation of estimated depletion and
depreciation costs associated with a tract of mineral land. The student must compute depletion and de–
*Problem 11.13 (Time 20–25 minutes)
Purpose—to provide the student with the opportunity to record land revaluation adjustments for 3 years.
*Problem 11.14 (Time 25–35 minutes)
Purpose—to provide the student with an opportunity to record equipment revaluation adjustments for
SOLUTIONS TO PROBLEMS
PROBLEM 11.1
(a) 1. Depreciable Base Computation:
Purchase price………………………….
$85,000
Less: Purchase discount (2%) ……
Installation ……………………………….
3,800
Cost …………………………………………
Less: Residual (sale) value ……….
1,500
2. Sum-of-the-years’-digits for 2020
Machine Year
Total
Depreciation
2019
2020
1
8/36* X $86,400 =
$19,200
$12,800**
$ 6,400***
2
7/36* X $86,400 =
$16,800
****
3. Double-declining-balance for 2019
($87,900 X 25%***** X 8/12) = $14,650