PROBLEM SET A
Problem 8-1A (50 minutes)
Part 1
Estimated
Market Value
Percent
of Total
Apportioned
Cost
Building ……………………..
$508,800
53%
$477,000
Land ………………………….
297,600
31
279,000
Jan. 1
Building ……………………………………………………….
477,000
Land ……………………………………………………………………..
279,000
Land Improvements ……………………………………………….
27,000
Vehicles ……………………………………………………….
117,000
Cash ……………………………………………………….
900,000
Record asset purchases.
Part 2
First year straight-line depreciation on building
[($477,000 – $27,000) / 15 years] = $30,000
Part 3
First year double-declining-balance depreciation on land improvements
(100% / 5 years) x 2 = 40% rate
$27,000 x 40% = $10,800
Part 4
Problem 8-2A (25 minutes)
Cost of machine ……………………………………………………..
$257,500
Less estimated salvage value …………………………..
20,000
Total depreciable cost …………………………..
$237,500
Year
Straight–Linea
Units–of-Productionb
Double-Declining-
Balancec
1 ………………….
$ 59,375
$110,000
$128,750
2 ………………….
59,375
62,300
64,375
3 ………………….
4 ………………….
$237,500
$237,500
aStraight- line:
Cost per year = $237,500/4 years = $59,375 per year
bUnits-of-production:
Cost per unit = $237,500/475,000 units = $0.50 per unit
Year
Units
Unit Cost
Depreciation
Accum. Depreciation
Book Value
1 …………….
220,000
$0.50
$110,000
$110,000
$147,500
2 …………….
124,600
0.50
62,300
172,300
85,200
4 …………….
0.50
cDouble-declining-balance:
(100%/4) x 2 = 50% depreciation rate
Year
Beginning
Book
Value
Annual
Depreciation
(50% of Book Value)
Accumulated
Depreciation
at Year-End
Book Value
($257,500 less
Accum. Depreciation)
1 ………
$257,500
$128,750
$128,750
$128,750
2 ………
128,750
64,375
193,125
64,375
3 ………
Problem 8-3A (45 minutes)
Part 1
Land
Building
2
Building
3
Land
Improve-
ments 1
Land
Improvements
2
Purchase price* ……………….
$1,612,000
$598,000
$390,000
Demolition ………………………
328,400
Land grading …………………..
175,400
New building……………………
$2,202,000
New improvements ………….
_________
_______
*Allocation of purchase price
Appraised
Value
Percent
of Total
Apportioned
Cost**
Land …………………………………..
$1,736,000
62%
$1,612,000
Part 2
Jan. 1
Land …………………………………………………………….
2,115,800
Building 2 …………………………………………………….
598,000
Building 3 …………………………………………………….
2,202,000
Land Improvements 1 …………………………………..
390,000
Land Improvements 2 …………………………………..
164,000
Cash ……………………………………………………….
5,469,800
Record costs of plant assets.
Part 3
Dec. 31
Depreciation Expense—Building 2 …………………………
26,900
Accumulated Depreciation—Building 2 …………….
26,900
Record depreciation [($598,000 – $60,000)/20].
Depreciation Expense—Building 3 …………………………
72,400
Accumulated Depreciation—Building 3 …………….
72,400
Record depreciation [($2,202,000 – $392,000)/25].
Depreciation Expense—Land Improv. 1 ………………….
32,500
Accum. Depreciation—Land Improv. 1 ………………
32,500
Depreciation Expense—Land Improv. 2 ………………….
Accum. Depreciation—Land Improv. 2 ………………
Problem 8-4A (50 minutes)
Year 1
Jan. 1
Equipment ……………………………………………………….
300,600
Cash ……………………………………………………………
300,600
Record loader costs ($287,600 +$11,500 +$1,500).
Jan. 3
Equipment ……………………………………………………….
4,800
Cash ………………………………………………………………
4,800
Record betterment of loader.
Depreciation Expense—Equipment ………………………
Record depreciation.
Year 2
Jan. 1
Equipment ……………………………………………………….
5,400
Cash ………………………………………………………………
5,400
Record extraordinary repair on loader.
Feb. 17
Repairs Expense—Equipment …………………………..
820
Cash ………………………………………………………………
820
Record ordinary repair on loader.
Depreciation Expense—Equipment ………………………
Problem 8-5A (40 minutes)
Record cost of truck ($20,515 + $1,485).
Dec. 31
Depreciation Expense—Trucks …………………………..
4,000
Accumulated Depreciation—Trucks ………………..
4,000
Record depreciation [($22,000 – $2,000)/5].
Year 2
Dec. 31
Depreciation Expense—Trucks …………………………..
5,200*
Accumulated Depreciation—Trucks ………………..
5,200
Record depreciation.
*Year 2 depreciation
Total cost ……………………………………………………………………………………
$ 22,000
Less accumulated depreciation (from Year 1) …………………………..
4,000
Book value ……………………………………………………………………………………
18,000
Less revised salvage value ……………………………………………………….
2,400
Remaining cost to be depreciated …………………………..
$ 15,600
Revised useful life ……………………………………………………….
4 yrs.
Less one year used in Year 1 ……………………………………………………….
1 yrs.
Revised remaining useful life ……………………………………………………….
3 yrs.
Total depreciation for Year 2 ($15,600/3) …………………………..
$ 5,200
Year 3
Dec. 31
Depreciation Expense—Trucks …………………………..
5,200
Accumulated Depreciation—Trucks ………………..
5,200
Record annual depreciation.
Dec. 31
Cash ……………………………………………………………………
5,300
Accumulated Depreciation—Trucks ……………………..
14,400**
Loss on Disposal of Trucks ………………………………….
2,300***
Trucks ……………………………………………………………
22,000
Record sale of truck.
Problem 8-6A (20 minutes)
1.
Jan. 2
Machinery ……………………………………………………….
178,000
Cash …………………………………………………………..
178,000
Record machinery purchase.
Jan. 3
Machinery ……………………………………………………….
Cash …………………………………………………………..
Jan. 3
Machinery ……………………………………………………….
Cash …………………………………………………………..
2. a. First year
Dec. 31
Depreciation Expense—Machinery ……………………….
28,000
Accumulated Depreciation—Machinery …………..
28,000
Record depreciation [($182,000 – $14,000)/6].
b. Fifth year
Dec. 31
Depreciation Expense—Machinery ……………………….
28,000
Accumulated Depreciation—Machinery …………..
28,000
Record depreciation.
3. Accumulated depreciation at the date of disposal
Five years’ depreciation (5 x $28,000) …………………….
$140,000
Book value at the date of disposal
Original total cost …………………………………………………
$182,000
Accumulated depreciation …………………………………….
(140,000)
Book value …………………………………………………………..
$ 42,000
Dec. 31
Cash ……………………………………………………………………
15,000
Loss on Sale of Machinery …………………………………..
27,000
Accumulated Depreciation—Machinery ………………..
140,000
Machinery ……………………………………………………….
182,000
Dec. 31
Cash ……………………………………………………………………
50,000
Accumulated Depreciation—Machinery ………………..
140,000
Machinery ……………………………………………………….
182,000
Gain on Sale of Machinery …………………………..
c. Destroyed in fire and collected $30,000 cash from insurance co.
Dec. 31
Cash ……………………………………………………………………
30,000
Accumulated Depreciation—Machinery ………………..
140,000
Loss from Fire ……………………………………………………..
12,000
Machinery ……………………………………………………….
182,000
Problem 8-7A (20 minutes)
a.
July 23
Mineral Deposit ……………………………………………………
4,715,000
Cash ……………………………………………………….
4,715,000
Record purchase of mineral deposit.
b.
July 25
Machinery ……………………………………………………….
410,000
Cash ……………………………………………………….
410,000
Record costs of machinery.
c.
441,600
441,600
480,000 tons x $0.92 = $441,600].
480,000 tons x $0.08 = $38,400].
Analysis Component
e. Depreciated over its useful life.
Explanation: If the machine will be used at another site when extraction
is complete, it is depreciated over its own useful life. Alternatively, when
the usefulness of a plant assets is directly related to the depletion of a
natural resource, their costs are depreciated using the units–of–
production method in proportion to the depletion of the natural resource.
Problem 8-8A (20 minutes)
(a)
Jan. 1
Right–of-Use Asset …………………………………………..
270,000
Lease Liability …………………………………………….
270,000
Record lease asset and obligation.
Record annual amortization of RoU asset.
PROBLEM SET B
Problem 8-1B (50 minutes)
Part 1
Estimated
Market Value
Percent
of Total
Apportioned
Cost
Building ……………………..
$ 890,000
50%
$ 900,000
Land …………………………..
427,200
24
432,000
Land improvements ……
249,200
14
252,000
Trucks ………………………..
213,600
12
216,000
Total …………………………..
$1,780,000
100%
$1,800,000
Part 2
First year straight-line depreciation on building
[($900,000 – $120,000) / 12 years] = $65,000
Part 3
Part 4
No. Total taxes paid over the life of the asset is the same. Accelerated
depreciation only postpones taxes.
Explanation: Accelerated depreciation does not lower the total amount of taxes
paid over the asset’s life. Instead, it defers or postpones taxes to the later years
of an asset’s useful life. This is because accelerated methods charge a higher
portion of asset costs against revenue in earlier years and a lower portion in later
Problem 8-2B (25 minutes)
Cost of machine …………………………..
$324,000
Less estimated salvage value …………………………..
30,000
Total depreciable cost …………………………..
$294,000
Year
Straight-Linea
Units-of-Productionb
Double-Declining-
Balancec
1 ……………….
$ 58,800
$ 71,120
$129,600
2 ……………….
58,800
64,080
77,760
3 ……………….
4 ……………….
5 ……………….
aStraight- line:
Cost per year = $294,000/5 years = $58,800 per year
bUnits-of-production:
Cost per unit = $294,000/1,470,000 units = $0.20 per unit
Year
Units
Unit Cost
Depreciation
1 …………..
355,600
$0.20
$ 71,120
2 …………..
320,400
0.20
64,080
3 …………..
317,000
0.20
63,400
4 …………..
343,600
0.20
68,720
5 …………..
138,500
0.20
cDouble-declining-balance (amounts rounded to the nearest dollar):
(100%/5) x 2 = 40% depreciation rate
Year
Beginning
Book Value
Annual
Depreciation
(40% of
Book Value)
Accumulated
Depreciation
at the End of
the Year
Ending Book Value
($324,000 Cost less
Accumulated
Depreciation)
1 …………
$324,000
$129,600
$129,600
$194,400
2 …………
194,400
77,760
207,360
116,640
3 …………
116,640
46,656
254,016
69,984
4 …………
27,994*
282,010
5 …………
294,000
30,000
Problem 8-3B (45 minutes)
Part 1
Land
Building
B
Building
C
Land
Improve-
ments B
Land
Improve-
ments C
Purchase price* ……….
$ 868,000
$527,000
$155,000
Demolition ………………
122,000
Land grading …………..
174,500
New building……………
$1,458,000
New improvements ….
_________
_______
_________
_______
$103,500
Totals ……………………..
$1,164,500
$527,000
$1,458,000
$155,000
$103,500
*Allocation of
purchase price
Appraised
Value
Percent
of Total
Apportioned
Cost
Land …………………………………..
$ 795,200
56%
$ 868,000
Building B …………………………..
527,000
142,000
155,000
Part 2
Jan. 1
Land ……………………………………………………………….
1,164,500
Building B……………………………………………………….
527,000
Building C……………………………………………………….
1,458,000
Land Improvements B ……………………………………..
155,000
Land Improvements C ……………………………………..
103,500
Record cost of plant assets.
Part 3
Dec. 31
Depreciation Expense—Building B …………………………..
28,500
Accumulated Depreciation—Building B ……………………..
28,500
Record depreciation [($527,000 – $99,500)/15].
31
Depreciation Expense—Building C ………………………
60,000
Accumulated Depreciation—Building C …………..
60,000
Record depreciation [($1,458,000 – $258,000)/20].
31,000
31
Depreciation Expense—Land Improvements C ……..
10,350
10,350
Record depreciation [$103,500/10].
Problem 8-4B (50 minutes)
Jan. 1
Equipment …………………………………………………………..
Cash ………………………………………………………………
Record costs of van ($25,860 + $1,810).
Jan. 3
Equipment …………………………………………………………..
1,850
Cash ………………………………………………………………
1,850
Record betterment of van.
Dec. 31
Depreciation Expense—Equipment ………………………
5,124*
Accumulated Depreciation—Equipment ………….
5,124
Record depreciation.
*Year 1 depreciation after January 3rd betterment
Total original cost ……………………………………………………….
$27,670
Plus cost of betterment …………………………………………………..
1,850
Revised cost of equipment ………………………………………………
29,520
Less revised salvage ($3,670 + $230) …………………………..
3,900
Cost to be depreciated ……………………………………………………
$25,620
Annual depreciation ($25,620 / 5 years) …………………………..
$ 5,124
Year 2
Jan. 1
Equipment …………………………………………………………..
2,064
Cash ………………………………………………………………
2,064
Record extraordinary repair on van.
May 10
Repairs Expense—Equipment ……………………………..
800
Cash ………………………………………………………………
800
Record ordinary repair on van.
Dec. 31
Depreciation Expense—Equipment ………………………
3,760*
Accumulated Depreciation—Equipment ………….
3,760
Total cost ($29,520 + $2,064) ……………………………………………………….
$31,584
Less accumulated depreciation ……………………………………………………….
5,124
Book value ……………………………………………………………………………………
26,460
Less salvage value ……………………………………………………………………………….
3,900
Remaining cost to be depreciated ……………………………………………………….
$22,560
Wild and Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 8
Problem 8-5B (40 minutes)
Year 1
Jan. 1
Machinery ……………………………………………………….
114,270
Cash ………………………………………………………………
114,270
Record costs of machinery ($107,800 +$6,470).
Dec. 31
Depreciation Expense—Machinery ……………………….
17,425
Accumulated Depreciation—Machinery …………..
17,425
Record depreciation [($114,270-$9,720)/6].
Year 2
Dec. 31
Depreciation Expense—Machinery ……………………….
27,500*
Accum. Depreciation—Machinery …………………..
27,500
Record depreciation.
Year 3
Dec. 31
Depreciation Expense—Machinery ……………………….
27,500
Accumulated Depreciation—Machinery …………..
27,500
Record depreciation.
Dec. 31
Cash ……………………………………………………………………
25,240
Accumulated Depreciation—Machinery ………………..
72,425**
Loss on Disposal of Machinery …………………………..
16,605***
Machinery ………………………………………………………
114,270
Record sale of machine.