Wild and Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 8
Chapter 8
Accounting for Long-Term Assets
QUESTIONS
1. A plant asset is tangible; it is used in the production or sale of other assets or services;
and it has a useful life longer than one accounting period.
2. The cost of a plant asset includes all normal and reasonable expenditures necessary to
get the asset in place and ready for its intended use.
3. Land is an asset with an unlimited life and, therefore, is not subject to depreciation.
Land improvements have limited lives and are subject to depreciation.
4. Often the lump-sum or basket purchase includes assets with different lives that must be
depreciated separately. Sometimes the purchase may include land, which is never
depreciated.
5. The Accumulated Depreciation—Machinery account is a contra asset account with a
credit balance that cannot be used to buy anything. The balance of the Accumulated
Depreciation—Machinery account reflects that portion of the machinery’s original cost
that has been charged to depreciation expense. It also gives some indication of the
asset’s age and how soon it will need to be replaced. Any funds available for buying
machinery are shown on the balance sheet as liquid assets with debit balances.
10. No, depletion expense should be calculated on the units that are extracted (similar to the
units-of–production basis) and sold.
11. An intangible asset: (1) has no physical existence; (2) derives value from the unique
legal and contractual rights held by its owner; and (3) is used in the company’s
operations.
13. A company has goodwill when its value exceeds the value of its individual assets and
liabilities. Goodwill appears in the balance sheet when one company acquires another
company or separate segment and pays a price that exceeds the combined values of all
its net assets (assets less liabilities) excluding goodwill.
14. No; this type of goodwill would not be amortized. Instead, the FASB (SFAS 142) requires
that goodwill be annually tested for impairment. If the book value of goodwill does not
exceed its fair (market) value, goodwill is not impaired. However, if the book value of
goodwill exceeds its fair value, an impairment loss is recorded equal to that excess.
(Details of this two-step test are in advanced courses.)
17. Google lists “Property and equipment, net” on the balance sheet. The net book value of
these assets is $42,383 million.
18. Samsung titles its plant assets “Property, plant and equipment.” The book value of its
plant assets is ₩111,665,648 (KRW millions).
19. Samsung reports the following long-term assets that are discussed in this chapter:
Property, plant and equipment; Intangible assets.
QUICK STUDIES
Quick Study 8-1 (10 minutes)
Recorded cost = $190,000 + $20,000 + $4,000 + $13,700 = $227,700
Note: The $1,850 repair charge is an expense because it is not a normal and reasonable
expenditure necessary to get the asset in place and ready for its intended use.
Quick Study 8-2 (10 minutes)
Expensed or Capitalized Asset Category (if any) .
1. Expensed —
2. Capitalized Equipment
3. Capitalized Equipment (reduce the cost of)
Quick Study 8-3 (10 minutes)
Straight-line:
($65,800 – $2,000) / 4 years = $15,950 depreciation per year
Quick Study 8-4 (10 minutes)
Quick Study 8-5 (10 minutes)
Note: Double-declining-balance rate = (100% / 8 years) x 2 = 25%
First year:
$830,000 x 25% = $207,500
Second year:
($830,000 – $207,500) x 25% = $155,625
Quick Study 8-6 (10 minutes)
1. Straight-line depreciation for the first year.
[($140,000 – $20,000) / 6 years] x 3/12 = $ 5,000
Quick Study 8-7 (10 minutes)
$65,800
Cost
– 15,950
Accumulated depreciation (first year)
49,850
Book value at point of revision
Salvage value
47,850
Remaining depreciable cost
Years of life remaining
Quick Study 8-8 (10 minutes)
Impairment Loss …………………………………………………….
1,250
Accumulated Depreciation—Equipment …………..
1,250
Quick Study 8-9 (10 minutes)
1. (a) CE Capital expenditure
(b) RE Revenue expenditure
2.
(a) Equipment……………………………………………………….
40,000
Cash ……………………………………………………….
40,000
(b) Repairs Expense ……………………………………………..
200
Cash ……………………………………………………….
200
(c) Repairs Expense ……………………………………………..
175
Cash ……………………………………………………….
175
Cash ……………………………………………………….
Quick Study 8-10 (15 minutes)
Book value of old equipment = $76,800 – $40,800 = $36,000
1.
Cash ……………………………………………………………………..
47,000
Accumulated depreciation ……………………………………..
40,800
Equipment…………………………..…………………………..
76,800
Gain on sale of equipment* ………………………………
11,000
Record sale of equipment. *(Gain = $47,000 – $36,000)
2.
Cash ……………………………………………………………………..
36,000
Accumulated depreciation ……………………………………..
40,800
Equipment…………………………..…………………………..
76,800
3.
Cash ……………………………………………………………………..
31,000
Accumulated depreciation ……………………………………..
40,800
Loss on sale of equipment*……………………………………….
5,000
Equipment…………………………..…………………………..
76,800
Record sale of equipment. *(Loss = $31,000 – $36,000)
Quick Study 8-11 (10 minutes)
1.
Ore Mine ………………………………………………………………..
1,800,000
Cash ……………………………………………………………….
1,800,000
Record cost of ore mine.
Depletion Expense—Ore Mine ………………………………..
Accumulated Depletion—Ore Mine …………………..
Record depletion of ore mine (180,000 x $1.60).
Quick Study 8-12 (10 minutes)
a. Oil well NR
b. Trademark IA
c. Leasehold IA
d. Gold mine NR
Quick Study 8-13 (10 minutes)
1.
Jan. 1
Leasehold Improvements ………………………………………..
105,000
Cash ………………………………………………………………..
105,000
Record leasehold improvements.
Quick Study 8-14 (15 minutes)
WESTEROS CO.
Income Statement
For Year Ended December 31
Revenues
Sales …………………………………………………… $30,000
Expenses
Salaries expense …………………………………. $10,000
Depreciation expense ………………………….. 5,000
Quick Study 8-15 (10 minutes)
a.
Total asset turnover = = 0.80 times
$14,800
($19,100 + $17,900) / 2
Quick Study 8-16A (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) ………………………………………….
42,400
Cash ………………………………………………………….
30,000
2.
Machinery (new) ………………………………………………..
52,000
Accumulated Depreciation–Machinery (old) ……….
18,400
Gain on Exchange of Assets* …………………….
6,000
Machinery (old) ………………………………………….
42,400
Cash ………………………………………………………….
22,000
Exercise 8-1 (15 minutes)
Invoice price of machine …………………………………………………
$ 12,500
Less discount ……………………………………………………….
(250)
Net purchase price……………………………………………………….
12,250
Transportation ……………………………………………………….
360
895
Assembly ……………………………………………………………………….
475
Materials used in readying for use …………………………..
40
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 …………………………………………………
47,000
Total cost of land …………………………..…………………………..
$ 470,500
Journal entry
Land Improvements ……………………………………………….
87,800
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
Building …………………….
176,670
45
$395,380 x .45
177,921
Totals ……………………….
$392,600
100%
$395,380
395,380
Exercise 8-4 (10 minutes)
Straight-line
($43,500 – $5,000) / 10 years = $3,850
Exercise 8-5 (10 minutes)
Units–of-production
Exercise 8-6 (15 minutes)
Double-declining-balance
Double-declining-balance rate = (100% / 10 years) x 2 = 20% per year
First year’s depreciation = $43,500 x 20% = $8,700
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 2 …..
32,250
89,500
Year 3 …..
Year 4 …..
25,000
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 ….
77,000
50
38,500
38,500
Year 3 ….
38,500
50
25,000
Year 4 ….
25,000
25,000
Exercise 8-9 (30 minutes)
Straight-line depreciation
Income
before
Depreciation
Depreciation
Expense*
Net
Income
Year 1 ……..
$ 88,500
$ 38,960
$ 49,540
Year 2 ……..
88,500
38,960
49,540
Year 3 ……..
88,500
38,960
49,540
Year 4 ……..
88,500
38,960
49,540
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 2 ……..
88,500
57,216
31,284
Year 3 ……..
54,170
Year 4 ……..
88,500
80,606
Year 5 ……..
Supporting calculations for depreciation expense
*Note: (100% / 5 years) x 2 = 40% depreciation rate
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 ……………
143,040
57,216
152,576
85,824
Year 3 ……………
34,330**
186,906
Year 4 ……………
194,800
Year 5 ……………
194,800
Exercise 8-11 (10 minutes)
Straight-line depreciation for the first year
[($280,000 – $40,000) / 5 years] x 9/12 = $36,000
Exercise 8-12 (15 minutes)
Double-declining-balance depreciation for the first and second year:
Rate = (100% / 5 years) x 2 = 40%
Depreciation for Year 1 ($280,000 x 40% x 9/12) …………
$ 84,000
Book value at January 1, Year 2 ($280,000 – $84,000) ….
$196,000
Depreciation for Year 2 ($196,000 x 40%) …………………..
$ 78,400
Alternate calculation
Year 1 depreciation ($280,000 x 40% x 9/12) …………………………
$ 84,000
Year 2 depreciation
$280,000 x 40% x 3/12 …………………………..………………………..
$ 28,000
($280,000 – $84,000 – $28,000) x 40% x 9/12 ………………………
50,400
Total Year 2 depreciation…………………………………………………….
$ 78,400
Exercise 8-13 (15 minutes)
1.
$ 23,860
Less two years’ accumulated depreciation
(10,730)
Book value at end of second year ……………………………………….
$ 13,130
2.
Book value at end of second year ……………………………………….
$ 13,130
Less revised salvage value …………………………………………………
(2,000)
Remaining depreciable cost ……………………………………………….
$ 11,130
Revised annual depreciation = $11,130 / 3 years = $3,710
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
Age of the building = Accumulated depreciation / Annual depreciation
= $429,000 / $28,600 = 15 years
68,350
Cash ………………………………………………………………
68,350
Record extraordinary repairs.
3.
Cost of building
$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
Journal entry
Depreciation Expense …………………………………………….
21,135
Accumulated Depreciation–Building ……………….
21,135
Record depreciation.
Exercise 8-16 (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
Accumulated Depreciation—Machine ……………………
182,000
Machine ……………………………………………………….
250,000
Record disposal of machine.
2. Sold for $35,000 cash
Jan. 1
Cash …………………………..……………………………………….
35,000
Loss on Sale of Machine …………………………..………….
33,000
Accumulated Depreciation—Machine ……………………
182,000
Machine ……………………………………………………….
250,000
Record cash sale of machine.
3. Sold for $68,000 cash
Jan. 1
Cash …………………………..……………………………………….
68,000
Accumulated Depreciation—Machine ……………………
182,000
Machine ……………………………………………………….
250,000
Record cash sale of machine.
4. Sold for $80,000 cash
Jan. 1
Cash …………………………..……………………………………….
80,000
Accumulated Depreciation—Machine ……………………
182,000
Gain on Sale of Machine …………………………………..
12,000
Machine ……………………………………………………….
250,000
Record cash sale of machine.
Exercise 8-17 (25 minutes)
2023
July 1
Depreciation Expense ………………………………………
7,500
Accumulated Depreciation—Machinery …………
7,500
Record one-half year depreciation.*
*Annual depreciation = $105,000 / 7 years = $15,000
Depreciation for 6 months in 2023 = $15,000 x 6/12 = $7,500
1. Sold for $45,500 cash
July 1
Cash …………………………..……………………………………….
45,500
67,500
Record sale of machinery.*
2. Sold for $25,000 cash
July 1
Cash …………………………..……………………………………….
25,000
Loss on Sale of Machinery ……………………………………
12,500
Accumulated Depreciation—Machinery ………………..
67,500
Machinery ……………………………………………………….
105,000
Record sale of machinery.
Exercise 8-18 (10 minutes)
Dec. 31
Depletion Expense—Mineral Deposit ……………………
405,528
Accumulated Depletion—Mineral Deposit …………
405,528
Record depletion [$3,721,000/1,525,000 tons =
$2.44 per ton; 166,200 tons x $2.44 = $405,528].
Accumulated Depreciation—Machinery ……………
Record depreciation [$213,500/1,525,000 tons=
$0.14 per ton; 166,200 tons x $0.14 = $23,268].
Exercise 8-19 (10 minutes)
Jan. 1
Copyright ……………………………………………………….
418,000
Cash…………………………..……………………………………
418,000
Record purchase of copyright.
Accumulated Amortization—Copyright …………….
Exercise 8-20 (10 minutes)
1. Goodwill = $2,500,000 – $1,800,000 = $700,000
2. No. Goodwill is not amortized. Instead, Robinson must test the value of
the Goodwill each year, and if the value is impaired, it must be written
down.
Exercise 8-21 (15 minutes)
GREGOR CO.
Balance Sheet
December 31
Assets
Current assets
Cash ……………………………………………………………… $ 6,000
Plant assets
Equipment …………………………………………………….. $20,000
Accumulated depreciation—Equipment …………. 13,000 7,000
Intangible assets
Patents …………………………………………………………. 4,000
Accumulated amortization—Patents ………………. 1,000 3,000
Goodwill ……………………………………………………….. 5,000
Total intangible assets …………………………………… 8,000
Total assets ………………………………………………………. $63,000
Liabilities
Current liabilities
Accounts payable ………………………………………….. $ 2,000
Long-term liabilities
Exercise 8-22 (15 minutes)
a.
Total asset turnover for Year 2 = = 3.36
Total asset turnover for Year 3 = = 4.59
b. Better.
Exercise 8-23A (15 minutes)
1. Book value of the old tractor ($96,000 – $52,500) …………………….. $ 43,500
2. Loss on the exchange
Book value – Trade-in allowance ($43,500 – $29,000) ………….. $ 14,500
3. Debit to new Tractor account
Cash paid + Trade-in allowance ($83,000 + $29,000) ………….. $112,000
$5,856,480
($1,800,000 + $1,686,000)/2
$8,679,690
($1,982,000 + $1,800,000)/2
Exercise 8-24A (25 minutes)
Note: Book value of Machine equals $44,000 – $24,625 = $19,375
1. Sold for $18,250 cash
Jan. 2
Cash …………………………..……………………………………….
18,250
Loss on Sale of Machinery …………………………..
1,125
Accumulated Depreciation—Machinery (old) …………
24,625
Machinery (old) ………………………………………………..
Jan. 2
Machinery (new) …………………………………………………..
60,200
Gain on Exchange of Machinery ……………………….
Cash* ……………………………………………………….
35,200
3. $15,000 trade-in allowance is less than book value (yielding a loss)
Jan. 2
Machinery (new) …………………………………………………..
60,200
Loss on Exchange of Machinery …………………………..
4,375
Accumulated Depreciation—Machinery (old) …………
24,625
Machinery (old) ………………………………………………..
44,000
Cash* ……………………………………………………….
45,200
Record asset exchange. *($60,200 – $15,000)