FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
S7-21A
(5-10 min.)
Solution:
Land: $150,000 + $170,000 + $3,000 + $4,500 + $7,000 = $334,500
What is the capitalized cost of each of Lexington’s land, land improvements,
and building?
Chapter 7: Plant Assets, Natural Resources, and Intangibles Page 21 of 98
Building: $54,000 + $800,000 = $854,000
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
S7-22A
(10-15 min.)
Solution:
Allocation of cost to individual machines:
1= 71,060$
Machine
Appraised
Value
What is each machine’s individual cost? Immediately after making this purchase,
Eastwood sold machine 3 for its appraised value. What is the result of the sale?
(Round decimals to three places when calculating proportions, and use your
computed percentages throughout.)
$209,000 × .340
Percentage of Total
Appraised (Market) Value
Total
Cost
Cost of
Each Machine
73,100$
$73,100 / $215,000 = .340
Chapter 7: Plant Assets, Natural Resources, and Intangibles Page 22 of 98
2= 117,040
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
S7-23A
(5-10 min.)
Solution:
(a)
(b)
Classify each of the following expenditures as a capital expenditure or an
immediate expense related to machinery:
Periodic lubrication
Major overhaul
Immediate Expense
Capital Expenditure
Chapter 7: Plant Assets, Natural Resources, and Intangibles Page 23 of 98
(c)
(d)
(e)
(k)
Training of personnel
Purchase price
Capital Expenditure
Capital Expenditure
Capital Expenditure
Income tax
Sales Tax
Ordinary recurring repairs
Transportation and insurance
Immediate Expense
Immediate Expense
Capital Expenditure
Immediate Expense
Capital Expenditure
Capital Expenditure
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
S7-24A
(15 min.)
Solution:
Req. 1
a. 485,000
485,000
DEBIT
Journal
1. Journalize transactions for the following:
a. Purchase of the land
b. All the costs chargeable to the building in a single entry
c. Depreciation on the building for 2016
Explanations are not required.
2. Report Chun’s Book Store’s plant assets on the company’s balance sheet
at December 31, 2016.
3. What will Chun’s income statement for the year ended December 31,
2016 report for these facts?
CREDIT
ACCOUNTS TITLES
Cash
Land
Chapter 7: Plant Assets, Natural Resources, and Intangibles Page 24 of 98
b.
690,000
Note Payable
($1,400 + $15,320 + $690,000 + $28,300)
Cash ($1,400 + $15,320 + $28,300)
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
Req. 2
BALANCE SHEET
Plant assets:
485,000$
Land
Chapter 7: Plant Assets, Natural Resources, and Intangibles Page 25 of 98
729,334$
Req. 3
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
E7-25A
(15-20 min.)
Requirements
Solution:
Req. 1
2016
Computations:
Straight-line: ($19,200 − $1,400) ÷ 4 = $4,450 per year.
1. Prepare a schedule of depreciation expense per year for the van under the three
depreciation methods discussed in this chapter. (For units-of-production and double-
declining-balance methods, round to the nearest two decimal places after each step of the
calculation.)
2. Which method best tracks the wear and tear on the van?
3. Which method would Piccadilly prefer to use for income tax purposes? Explain in detail
why Piccadilly would prefer this method
Year
Straight-Line
Units-of-Production
Double-Declining-
Balance
7,000$
4,450$
9,600$
Chapter 7: Plant Assets, Natural Resources, and Intangibles Page 26 of 98
2017
2018
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
2016 $19,200 × .50 =
Req. 2
Req. 3
$ 9,600
Double-declining-balance – Twice the straight-line rate: 1/4 × 2 = 50%
Chapter 7: Plant Assets, Natural Resources, and Intangibles Page 27 of 98
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
E7-26A
(15 min.)
Solution:
INCOME STATEMENT
Expenses:
Depreciation expense — Building
BALANCE SHEET
Current assets:
Supplies
STATEMENT OF CASH FLOWS
Cash flows from investing activities:
Show what the restaurant will report for supplies, plant assets, and cash flows
at the end of the first year on its
■ income statement,
■ balance sheet, and
■ statement of cash flows (investing only).
1,500$
Chapter 7: Plant Assets, Natural Resources, and Intangibles Page 28 of 98
Depreciation expense — Furniture and Fixtures
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
E7-27A
(10-15 min.)
Solution:
Year 20 8,875
Computations:
Depreciable cost: $445,000 − $90,000 = $355,000
New annual depreciation:
ACCOUNTS TITLES
DATE
Record depreciation expense on the building for years 20 and 21.
Journal
DEBIT
CREDIT
Depreciation Expense – Building ($355,000 ÷ 40)
Chapter 7: Plant Assets, Natural Resources, and Intangibles Page 29 of 98
Year 21 18,000*
Accumulated Depreciation — Building
Depreciation Expense – Building
Accumulated Depreciation — Building
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
E7-28A
(10 min.)
Solution:
Req. 1
($920,000 – $70,000) / 8 years = $106,250 per year
1. Compute accumulated depreciation on the machine at January 1, 2019 (same as
December 31, 2018).
2. Record the sale of the machine on January 1, 2019.
Chapter 7: Plant Assets, Natural Resources, and Intangibles Page 30 of 98
Book value = $920,000 – $425,000 = $495,000
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
E7-29A
(10-15 min.)
Solution:
2017
Aug. 31 1,312*
Record both the depreciation expense on the fixtures for 2017 and the sale of
the fixtures. Apart from your journal entry, also show how to compute the gain or
loss on Sonoma-Maine’s disposal of these fixtures.
Journal
DATE
ACCOUNTS TITLES
DEBIT
CREDIT
Depreciation Expense – Fixtures
Depreciation for 8 months:
Chapter 7: Plant Assets, Natural Resources, and Intangibles Page 31 of 98
Accumulated Depreciation — Fixtures
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
E7-30A
(15-20 min.)
Solution:
Cost of old truck 400,000$
Less: Accumulated depreciation:
($400,000 − $90,000) × 85 + 165 + 175 + 41 (144,460)*
Determine Covenant’s gain or loss on the transaction. Prepare the journal
entry to record the trade-in of the old truck on the new one.
Chapter 7: Plant Assets, Natural Resources, and Intangibles Page 32 of 98
Book value of old truck 255,540$
Alternate solution setup for accumulated depreciation:
85,000 + 165,000 + 175,000 + 41,000 = 466,000 miles driven
Accumulated depreciation = 466,000 miles × $.31
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
E7-31A
(10-15 min.)
Solution:
(a) Purchase of mineral assets:
Mineral Asset 424,000
Make journal entries to record (a) purchase of the mineral rights, (b) payment of fees
and other costs, (c) depletion for first-year production, and (d) sales of ore. Round
depletion per unit to the closest cent.
Journal
DATE
ACCOUNTS TITLES
DEBIT
CREDIT
Chapter 7: Plant Assets, Natural Resources, and Intangibles Page 33 of 98
(b) Payment of fees and other costs:
Mineral Asset Inventory 71,400*
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
E7-32A
(10-15 min.)
Solution:
Req. 1
(a) Purchase of patent:
Patents 800,000
1. Assuming the straightline method of amortization, make journal entries to record (a)
the purchase of the patent and (b) amortization for year 1.
2. Its fair value on the open market is zero. Is this asset impaired? If so, make the
impairment adjusting entry.
Journal
DATE
ACCOUNTS TITLES
DEBIT
CREDIT
Chapter 7: Plant Assets, Natural Resources, and Intangibles Page 34 of 98
Cash 800,000
(b) Amortization for each year:
Req. 2
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
E7-33A
(5-10 min.)
Requirements
Solution:
Req. 1
Cost of goodwill purchased:
Purchase price paid for Burton Industries 19$
1. Compute the cost of goodwill purchased by Caltron Co.
2. Journalize Caltron Co.’s purchase of Burton Industries.
3. Explain how Caltron Co. will account for goodwill.
Millions
Chapter 7: Plant Assets, Natural Resources, and Intangibles Page 35 of 98
Req. 2
Req. 3
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
E7-34A
(5-10 min.)
Requirements
Solution:
Req. 1
Net profit margin ratio
for the years ended:
Req. 3
Return on assets for
the years ended:
Net earnings 3,600$ 6.00% 3,300$ 5.56%
Average total assets 60,000$ 59,400$
1. Compute net profit margin ratio for the years ended January 31, 2015, and
2014. Did it improve or worsen in 2015?
2. Compute asset turnover for the years ended January 31, 2015, and 2014.
Did it improve or worsen in 2015?
3. Compute return on assets for the years ended January 31, 2015, and 2014.
Did it improve or worsen in 2015? Which component (net profit margin ratio or
asset turnover) was mostly responsible?
January 31, 2015
January 31, 2014
January 31, 2015
January 31, 2014
Chapter 7: Plant Assets, Natural Resources, and Intangibles Page 36 of 98
Net earnings 3,600$ 4.80% 3,300$ 4.48%
Net sales 75,000$ 73,600$
Req. 2
Asset turnover for
the years ended:
Net sales 75,000$ 1.25 73,600$ 1.24
Average total assets 60,000$ 59,400$
January 31, 2015
January 31, 2014
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
E7-35A
(10 min.)
Solution:
a. Sale of building (or disposal of building) 650,000$
For each transaction, show what Abbey would report for investing activities on
its statement of cash flows. Show negative amounts in parentheses.
Chapter 7: Plant Assets, Natural Resources, and Intangibles Page 37 of 98
b.
d. Purchase of store fixtures (or capital expenditures) (50,000)
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
E7-36B
(5-10 min.)
Solution:
Land: $145,000 + $175,000 + $1,000 + $2,500 + $4,000 = $327,500
What is the capitalized cost of each of Pierce’s land, land improvements,
and building?
Chapter 7: Plant Assets, Natural Resources, and Intangibles Page 38 of 98
Building: $55,000 + $800,000 = $855,000
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
E7-37B
(10-15 min.)
Solution:
Allocation of cost to individual machines:
1= 29,600$
What is each machine’s individual cost? Immediately after making this purchase,
Boltwood sold machine 3 for its appraised value. What is the result of the sale?
(Round decimals to three places when calculating proportions, and use your
computed percentages throughout.)
$148,000 × .200
30,000$
$30,000 / $150,000 = .200
Machine
Appraised
Value
Percentage of Total
Appraised (Market) Value
Total
Cost
Cost of
Each Machine
Chapter 7: Plant Assets, Natural Resources, and Intangibles Page 39 of 98
2= 74,000
75,000 / 150,000 = .500
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
E7-38B
(5-10 min.)
Solution:
(a)
(b)
Classify each of the following expenditures as a capital expenditure or an
immediate expense related to machinery:
Major overhaul
Capital Expenditure
Periodic lubrication
Immediate Expense
Chapter 7: Plant Assets, Natural Resources, and Intangibles Page 40 of 98
(c)
(d)
(h)
(k)
Sales Tax
Capital Expenditure
Income Tax
Immediate Expense
Reinforcement to platform
Capital Expenditure
Ordinary recurring repairs
Immediate Expense
Transportation and insurance
Capital Expenditure
Capital Expenditure
Capital Expenditure
Training of personnel
Capital Expenditure
Purchase price
Capital Expenditure