Wild and Shaw Financial and Managerial Accounting 9e Solutions Manual: Chapter 8
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Chapter 8
Accounting for Long-Term Assets
QUICK STUDIES
Quick Study 8-1 (10 minutes)
Quick Study 8-2 (10 minutes)
Expensed or Capitalized Asset Category (if any) ___ .
1. Expensed —
2. Capitalized Equipment
Quick Study 8-3 (15 minutes)
Allocation of total cost
Appraised
Value
Percent
of Total
Applying %
to Cost
Apportioned
Cost
Land …………………….
$ 50,000
25%
$180,000 x .25
$ 45,000
$200,000
$180,000
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Quick Study 8-4 (10 minutes)
Quick Study 8-5 (10 minutes)
Quick Study 8-6 (10 minutes)
Note: Double-declining-balance rate = (100% / 8 years) x 2 = 25%
First year:
Quick Study 8-7 (15 minutes)
Straight-line:
($13,000 – $3,000) / 10 years = $1,000 depreciation in first year
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Quick Study 8-8 (15 minutes)
Straight-line:
Depreciation Expense …………………………………….
1,000
Accumulated Depreciation—Equipment ……..
1,000
Record depreciation.
Units–of-production:
Depreciation Expense …………………………………….
Accumulated Depreciation—Equipment ……..
Record depreciation.
Depreciation Expense …………………………………….
Accumulated Depreciation—Equipment ……..
Record depreciation.
Quick Study 8-9 (10 minutes)
1. Straight-line depreciation for the first year.
Quick Study 8-10 (10 minutes)
$65,800
Cost
– 15,950
Accumulated depreciation (first year)
Book value at point of revision
Salvage value
Remaining depreciable cost
Years of life remaining
Wild and Shaw Financial and Managerial Accounting 9e Solutions Manual: Chapter 8
Quick Study 8-11 (10 minutes)
1. (a) Capital expenditure
2.
(a) Equipment …………………………………………………..
40,000
Cash …………………………………………………….
40,000
Record an extraordinary repair.
Cash …………………………………………………….
Quick Study 8-12 (15 minutes)
Book value of old equipment = $76,800 – $40,800 = $36,000
1.
Cash …………………………………………………………………….
47,000
Accumulated depreciation ……………………………………
40,800
Equipment ……………………………………………………..
76,800
11,000
2.
Cash …………………………………………………………………….
36,000
Accumulated depreciation ……………………………………
40,800
Equipment ……………………………………………………..
76,800
3.
Cash …………………………………………………………………….
31,000
Accumulated depreciation ……………………………………
40,800
Equipment ……………………………………………………..
76,800
Wild and Shaw Financial and Managerial Accounting 9e Solutions Manual: Chapter 8
Quick Study 8-13 (10 minutes)
1.
Ore Mine ……………………………………………………………
1,800,000
1,800,000
Record cost of ore mine.
2.
Depletion per unit = = $1.60 per ton
Record depletion of ore mine (180,000 x $1.60).
Quick Study 8-14 (10 minutes)
a. Natural resources
b. Intangible assets
Quick Study 8-15 (10 minutes)
1.
Record leasehold improvements.
2.
Dec. 31
Amortization Expense–Leasehold Improvements …..
13,125
Accumulated Amortization—Leasehold
$1,800,000 – $200,000
1,000,000 tons
13,125
Wild and Shaw Financial and Managerial Accounting 9e Solutions Manual: Chapter 8
Quick Study 8-16 (10 minutes)
ROBOTIX CO.
Balance Sheet
December 31
Assets
Intangible assets
Quick Study 8-17 (5 minutes)
Quick Study 8-18 (10 minutes)
1. Research and Development expenses
Research lab rent expense …………………………...
2. Patent account (capitalized costs)
Acquired a new patent …………………………………..
$50,000
Wild and Shaw Financial and Managerial Accounting 9e Solutions Manual: Chapter 8
Quick Study 8-19 (15 minutes)
WESTEROS CO.
Income Statement
For Year Ended December 31
Revenues
Sales …………………………………………………… $30,000
Expenses
Quick Study 8-20 (15 minutes)
RIDLEY CO.
Balance Sheet
December 31
Assets
Current assets
Cash ……………………………………………………………… $ 8,000
Inventory ………………………………………………………. 6,000
Total current assets ……………………………………….. 14,000
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Quick Study 8-21 (10 minutes)
1.
2. Worse.
Quick Study 8-22A (10 minutes)
Book value of old machine = $42,400 – $18,400 = $24,000
1.
Machinery (new) ………………………………………………
52,000
Accumulated Depreciation–Machinery (old) ……..
18,400
Machinery (old) ……………………………………….
Cash ……………………………………………………….
2.
Machinery (new) ………………………………………………
52,000
Accumulated Depreciation–Machinery (old) ……..
18,400
Gain on Exchange of Assets* …………………..
Machinery (old) ……………………………………….
Cash ……………………………………………………….
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EXERCISES
Exercise 8-1 (15 minutes)
Invoice price of machine ………………………………….
$ 12,500
Less discount ………………………………………………….
(250)
Transportation …………………………………………………
Assembly ………………………………………………………..
Materials used in readying for use ……………………
Exercise 8-2 (15 minutes)
Cost of land
Purchase price for land ……………………………………
$ 390,000
Demolition costs for old building ……………………..
33,500
Costs to fill and level lot …………………………………..
Land Improvements …………………………………………
87,800
Wild and Shaw Financial and Managerial Accounting 9e Solutions Manual: Chapter 8
Exercise 8-3 (20 minutes)
Allocation of total cost
Appraised
Value
Percent
of Total
Applying %
to Cost
Apportioned
Cost
Land …………………….
$157,040
40%
$395,380 x .40
$158,152
Land improvements .
58,890
15
$395,380 x .15
59,307
$395,380 x .45
$392,600
$395,380
395,380
Exercise 8-4 (10 minutes)
Straight-line
Exercise 8-5 (10 minutes)
Units–of-production
551
Exercise 8-6 (15 minutes)
Double-declining-balance
Double-declining-balance rate = (100% / 10 years) x 2 = 20% per year
Exercise 8-7 (15 minutes)
Straight-line depreciation: ($154,000 – $25,000) / 4 years = $32,250 per year
Year
Annual Depreciation
Year-End Book Value
Year 1 ….
$ 32,250
$121,750
Year 3 ….
$129,000
Exercise 8-8 (20 minutes)
Double-declining-balance depreciation
Depreciation rate: 100% / 4 years = 25% x 2 = 50%
Year
Beginning-Year
Book Value
Depreciation
Rate
Annual
Depreciation
Year-End
Book Value
Year 1 ….
$154,000
50%
$ 77,000
$77,000
Year 2 ….
Year 3 ….
Year 4 ….
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Exercise 8-9 (30 minutes)
Straight-line depreciation
Income before
Depreciation
Depreciation
Expense*
Net
Income
Year 1 …….
$ 88,500
$ 38,960
$ 49,540
Year 3 …….
Year 5 …….
Exercise 8-10 (30 minutes)
Double-declining-balance depreciation
Income before
Depreciation
Depreciation
Expense*
Net
Income
Year 1 ……..
$ 88,500
$ 95,360
$ (6,860)
Year 3 …….
Year 5 …….
Beginning
Book
Value
Annual
Depreciation
(40% of
Book Value)
Accumulated
Depreciation at
the End of the
Year
Ending Book Value
($238,400 Cost Less
Accumulated
Depreciation)
Year 1 ………
$238,400
$ 95,360
$ 95,360
$143,040
Year 2 ………
Year 3 ………
Year 4 ………
Year 5 ………
Wild and Shaw Financial and Managerial Accounting 9e Solutions Manual: Chapter 8
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Exercise 8-11 (10 minutes)
Straight-line depreciation for the first year
Exercise 8-12 (15 minutes)
Double-declining-balance depreciation for the first and second year:
Rate = (100% / 5 years) x 2 = 40%
Exercise 8-13 (15 minutes)
1.
Original cost of machine …………………………………………
$ 23,860
Less two years’ accumulated depreciation
[($23,860 – $2,400) / 4 years] x 2 years …………………..
Book value at end of second year …………………………..
$ 13,130
2.
Book value at end of second year …………………………..
$ 13,130
Less revised salvage value …………………………………….
Wild and Shaw Financial and Managerial Accounting 9e Solutions Manual: Chapter 8
Exercise 8-14 (15 minutes)
1.
Equipment ………………………………………………………
22,000
Cash …………………………………………………………
22,000
Record betterment.
2.
Repairs Expense …………………………………………….
Cash …………………………………………………………
Record ordinary repairs.
3.
Equipment ………………………………………………………
14,870
Cash …………………………………………………………
14,870
Record extraordinary repairs.
Exercise 8-15 (25 minutes)
1. Annual depreciation = $572,000 / 20 years = $28,600 per year
2. Entry to record the extraordinary repairs
68,350
Cash …………………………………………………………
68,350
Record extraordinary repairs.
3.
Cost of building
Before repairs ………………………………………………
$572,000
Add cost of repairs ……………………………………….
$640,350
Less accumulated depreciation ……………………….
Revised book value of building ……………………….
4.
Revised book value of building (part 3) ……………
$211,350
New estimate of useful life (20 – 15 + 5) ……………
10 years
Revised annual depreciation
$ 21,135
21,135
21,135
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Exercise 8-16 (15 minutes)
Assets
=
Liabilities
+
Equity
Jan. 1
Equipment
+25,000
Cash
–25,000
+
Equity
Equipment
Cash
Assets
+
Equity
Wild and Shaw Financial and Managerial Accounting 9e Solutions Manual: Chapter 8
Exercise 8-17 (20 minutes)
Note: Book value of machine = $250,000 – $182,000 = $68,000
1. Disposed at no value
Jan. 1
Loss on Disposal of Machine ……………………….
68,000
2. Sold for $35,000 cash
Jan. 1
Cash ……………………………………………………………
35,000
Loss on Sale of Machine …………………………..….
33,000
3. Sold for $68,000 cash
Jan. 1
Cash ……………………………………………………………
68,000
4. Sold for $80,000 cash
Jan. 1
Cash ……………………………………………………………
80,000
Wild and Shaw Financial and Managerial Accounting 9e Solutions Manual: Chapter 8
Exercise 8-18 (25 minutes)
July 1
Depreciation Expense ……………………………………
7,500
1. Sold for $45,500 cash
July 1
Cash …………………………………………………………….
45,500
Accumulated Depreciation—Machinery …………
67,500
2. Sold for $25,000 cash
July 1
Cash …………………………………………………………….
25,000
12,500
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Exercise 8-19 (10 minutes)
Dec. 31
Depletion Expense—Mineral Deposit ……………
405,528
Accumulated Depletion—Mineral Deposit ..
405,528
Accumulated Depreciation—Machinery ……
Exercise 8-20 (10 minutes)
Jan. 1
Iron Mine …………………………………………………….
820,000
Cash ……………………………………………………….
820,000
Record cost of iron mine. [$760,000 + $60,000]
Exercise 8-21 (10 minutes)
Jan. 1
Copyright ……………………………………………………
418,000
Cash ……………………………………………………….
418,000
Exercise 8-22 (10 minutes)
1. Goodwill = $2,500,000 – $1,800,000 = $700,000
Wild and Shaw Financial and Managerial Accounting 9e Solutions Manual: Chapter 8
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Exercise 8-23 (15 minutes)
GREGOR CO.
Balance Sheet
December 31
Assets
Current assets
Cash ……………………………………………………………… $ 6,000
Plant assets
Liabilities
Current liabilities
Accounts payable ………………………………………….. $ 2,000
Equity
Common stock …………………………………………………. 10,000
560
Exercise 8-24 (15 minutes)
a.
Total asset turnover for Year 2 = = 3.36
$8,679,690
($1,982,000 + $1,800,000)/2
b. Better.
Analysis: Lok is better with its efficiency in using assets relative to its
Exercise 8-25A (15 minutes)
1. Book value of the old tractor ($96,000 – $52,500) $ 43,500
$5,856,480
($1,800,000 + $1,686,000)/2