FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
E7-39B
(15 min.)
Solution:
Req. 1
a. 484,000
484,000
Cash
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 Liang’s Book Store’s plant assets on the company’s balance sheet at
December 31, 2016.
3. What will Liang’s income statement for the year ended December 31, 2016,
report for this situation?
Journal
ACCOUNTS TITLES
DEBIT
CREDIT
Land
Chapter 7: Plant Assets, Natural Resources, and Intangibles Page 41 of 98
b.
685,000
($1,300 + $15,300 + $685,000 + $28,220)
Note Payable
Cash ($1,300 + $15,300 + $28,220)
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
Req. 2
BALANCE SHEET
Plant assets:
484,000$
Req. 3
INCOME STATEMENT
Land
Chapter 7: Plant Assets, Natural Resources, and Intangibles Page 42 of 98
724,194$
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
E7-40B
(15-20 min.)
Requirements
Solution:
Req. 1
2016
Computations:
Straight-line: ($18,600 − $1,500) ÷ 4 = $4,275 per year.
Units-of-production: ($18,600 − $1,500) ÷ 57,000 miles = $.30 per mile:
2016 × 0.30$ =6,150$
2017 × 0.30 =4,800
16,000
20,500
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 Langley prefer to use for income tax purposes? Explain in
detail why Langley would prefer this method.
Year
Straight-Line
Units-of-Production
Double-Declining-
Balance
4,275$
6,150$
9,300$
Chapter 7: Plant Assets, Natural Resources, and Intangibles Page 43 of 98
2017
2018
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
1/4 × 2 = 50%
2016 $18,600 × .50 = $ 9,300
Req. 2
Req. 3
The units-of production method tracks the wear and tear on the van most
Double-declining-balance-Twice the straight-line rate:
Chapter 7: Plant Assets, Natural Resources, and Intangibles Page 44 of 98
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
E7-41B
(15 min.)
Solution:
INCOME STATEMENT
Expenses:
Depreciation expense — Building
[($157,000 + $63,000) − $50,000] / 25
BALANCE SHEET
Current assets:
Supplies
STATEMENT OF CASH FLOWS
Show what the restaurant will report for supplies, plant assets, and cash flows
at the end of the first year on its
■ income statement,
■ balance sheet, and
■ statement of cash flows (investing only).
6,800$
1,800$
Chapter 7: Plant Assets, Natural Resources, and Intangibles Page 45 of 98
Depreciation expense — Furniture and Fixtures
($9,800 − $1,800)
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
E7-42B
(10-15 min.)
Solution:
Year 20
9,000
Depreciation Expense – Building ($360,000 ÷ 40)
Record depreciation expense on the building for years 20 and 21.
Journal
DATE
ACCOUNTS TITLES
DEBIT
CREDIT
Chapter 7: Plant Assets, Natural Resources, and Intangibles Page 46 of 98
Year 21
Depreciation through year 20: $360,000 ÷ 40 = $9,000 × 20 = $180,000
Accumulated Depreciation — Building
Depreciation Expense – Building
Accumulated Depreciation — Building
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
E7-43B
(10 min.)
Solution:
Req. 1
($850,000 – $40,000) / 8 years = $101,250 per year
1. Compute accumulated depreciation on the machine at January 1, 2018 (same as
December 31, 2017).
2. Record the sale of the machine on January 1, 2018.
Chapter 7: Plant Assets, Natural Resources, and Intangibles Page 47 of 98
Book value = $850,000 – $506,250 = $343,750
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
E7-44B
(15-20 min.)
Solution:
2017
Sept. 30 1,440*
1,440
Depreciation for 9 months:
Depreciation Expense – Fixtures
Accumulated Depreciation — Fixtures
Record both the depreciation expense on the fixtures for 2017 and the sale of the
fixtures. Apart from your journal entry, also show how to compute the gain or loss on
Drake-Neiman’s disposal of these fixtures.
Journal
DATE
ACCOUNTS TITLES
DEBIT
CREDIT
Chapter 7: Plant Assets, Natural Resources, and Intangibles Page 48 of 98
8,000
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
E7-45B
(10-15 min.)
Solution:
Cost of old truck 390,000$
Less: Accumulated depreciation:
($390,000 − $70,000) × 79+ 159 + 189 + 36 (148,160)*
1,000
Carson Truck Company paid cash of $24,000. Determine Carson Trucks’ gain or loss
on the transaction. Prepare the journal entry to record the trade-in of the old truck on
Chapter 7: Plant Assets, Natural Resources, and Intangibles Page 49 of 98
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
E7-46B
(10-15 min.)
Solution:
(a) Purchase of mineral assets:
Mineral Asset 432,000
Cash 432,000
Make journal entries to record (a) purchase of the mineral rights, (b) payment of fees
and other costs, (c) depletion for first-year production, and (d) sales of ore. Round
depletion per unit to the closest cent.
Journal
DATE
ACCOUNTS TITLES
DEBIT
CREDIT
Chapter 7: Plant Assets, Natural Resources, and Intangibles Page 50 of 98
(b) Payment of fees and other costs:
Mineral Asset Inventory 86,800*
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
E7-47B
(10-15 min.)
Solution:
Req. 1 & 2
(a) Purchase of patent:
1. Assuming the straight-line method of amortization, make journal entries to record
(a) the purchase of the patent and (b) amortization for year 1.
2. Is this asset impaired? If so, record the impairment adjusting entry.
Journal
DATE
ACCOUNTS TITLES
DEBIT
CREDIT
Chapter 7: Plant Assets, Natural Resources, and Intangibles Page 51 of 98
(b) Amortization for each year:
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
E7-48B
(5-10 min.)
Requirements
Solution:
Req. 1
Cost of goodwill purchased:
Purchase price paid for Bailey Industries 18$
Req. 2
Current Assets 17
Long-Term Assets 21
Goodwill 4
Req. 3
1. Compute the cost of goodwill purchased by Doltron Co.
2. Journalize Doltron Co.’s purchase of Bailey Industries.
3. Explain how Doltron Co. will account for goodwill.
Journal
DATE
ACCOUNTS TITLES
DEBIT
Doltron Co. will determine whether its goodwill has been impaired in
CREDIT
Millions
Chapter 7: Plant Assets, Natural Resources, and Intangibles Page 52 of 98
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
E7-41B
(5-10 min.)
Requirements
Solution:
Req. 1
Net profit margin ratio
for the years ended:
Req. 2
Asset turnover for
the years ended:
Net sales 75,000$ 1.25 73,600$ 1.24
Average total assets 60,000$ 59,300$
Req. 3
Return on assets for
the years ended:
Net earnings 3,600$ 6.00% 3,450$ 5.82%
Average total assets 60,000$ 59,300$
January 31, 2015
January 31, 2014
January 31, 2015
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, 2014
January 31, 2015
January 31, 2014
Chapter 7: Plant Assets, Natural Resources, and Intangibles Page 53 of 98
Net earnings 3,600$ 4.80% 3,450$ 4.69%
Net sales 75,000$ 73,600$
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
E7-50B
(10 min.)
Solution:
a. Sale of building (or disposal of building) 600,000$
For each transaction, show what Thomas Manufacturing 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 54 of 98
b. Insurance proceeds from fire (or disposal of building) 130,000
d. Purchase of store fixtures (or capital expenditures) (130,000)
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
Quiz
Q7-51 c
Q7-52 c
Q7-53 d
[$575,000 / ($575,000 + $143,750) × ($3,000,000 +
Chapter 7: Plant Assets, Natural Resources, and Intangibles Page 55 of 98
Q7-54 c
Q7-55 d
Q7-57 d
Q7-58 a
Q7-59 a
Q7-61 a
Q7-65 d $36,000 / $300,000
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
P7-66A
(20-30 min.)
Requirements
Solution:
Req. 1
(a) 283,500$
(b) 8,800
(a) Land: $315,000 / $400,000 × $360,000 = $283,500
Garage building: $ 85,000 / $400,000 × $360,000 = $76,500
Garage building: $ 42,000 × .06 = $2,520
Computations:
73,000$
1. Show how to account for each of Bowler Supply’s costs by listing the cost under the
correct account. Determine the total cost of each asset.
2. All construction was complete and the assets were placed in service on April 2.
Record depreciation for the year ended December 31. Round to the nearest dollar.
3. How will what you learned in this problem help you manage a business?
ITEM
LAND
LAND
IMPROVEMENTS
SALES
BUILDING
GARAGE
BUILDING
FURNITURE
Chapter 7: Plant Assets, Natural Resources, and Intangibles Page 56 of 98
(e) 5,500
(h)
(n)
(o)
(p)
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
Req. 2
Dec. 31 Depreciation Expense — Land
Improvements ($102,400 / 15 × 9/12) 5,120*
Accumulated Depreciation —
Req. 3
This problem shows how to determine the cost of a plant asset. It also
demonstrates the computation of depreciation for a variety of plant assets.
Journal
DATE
ACCOUNTS TITLES
DEBIT
CREDIT
Chapter 7: Plant Assets, Natural Resources, and Intangibles Page 57 of 98
($600,000 / 30 × 9/12) 15,000
Accumulated Depreciation —
Building ($112,000 / 30 × 9/12) 2,800
Accumulated Depreciation —
Accumulated Depreciation —
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
P7-67A
(15 min.)
Requirements
Solution:
Req. 1
Equipment 105,000
Cash 105,000
Req. 2
BALANCE SHEET
Property, plant, and equipment:
Land 141,000$
1. Journalize Romano Lake Resort’s plant asset purchase and depreciation
transactions for 2017.
2. Report plant assets on the December 31, 2017, balance sheet.
Journal
DEBIT
CREDIT
ACCOUNTS TITLES
Chapter 7: Plant Assets, Natural Resources, and Intangibles Page 58 of 98
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
P7-68A
(25-35 min.)
Requirement
Solution:
Jan. 3 Equipment (new) 183,000
Accumulated Depreciation — Equipment 61,000
June
30 Cash 140,000
Note Receivable 350,250
Accumulated Depreciation —
Building ($160,000 + $4,750) 164,750
Building ($284,750 / $335,000 × $310,000) 263,500
Cash 310,000
Dec.
Dec.
[($263,500 − $52,700) / 40 X 2/12] 878
Accumulated Depreciation — Building 878
1. Record the transactions in Carr, Inc.’s journal.
Journal
DEBIT
CREDIT
ACCOUNTS TITLES
DATE
Chapter 7: Plant Assets, Natural Resources, and Intangibles Page 59 of 98
June
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
P7-69A
(30-40 min.)
Requirements
Solution:
Req. 1
Depreciation Accumulated Asset book
Expense Depreciation value
1-03-2016 317,500$ 317,500$
12/31/2016 1/5 282,000$ 56,400$ 56,400$ 261,100
Depreciation for the Year
Straight-Line Depreciation Schedule
Date
Asset Cost
1. For each of the generally accepted depreciation methods, prepare a depreciation schedule
showing asset cost, depreciation expense, accumulated depreciation, and asset book value.
2. Wayne reports to stockholders and creditors in the financial statements using the depreciation
method that maximizes reported income in the early years of asset use. For income tax
purposes, the company uses the depreciation method that minimizes income tax payments
in those early years. Consider the first year Wayne Co. uses the computer. Identify the
depreciation methods that meet Wayne’s objectives, assuming the income tax authorities
permit the use of any of the methods.
3. Net cash provided by operations before income tax is $155,000 for the computer’s first year.
The income tax rate is 40%. For the two depreciation methods identified in requirement 2,
compare the net income and net cash provided by operations (cash flow). Show which
method gives the net income advantage and which method gives the cash flow advantage.
Depreciation
Rate
Depreciable
Cost
=
x
Chapter 7: Plant Assets, Natural Resources, and Intangibles Page 60 of 98