Wild and Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 8
499
PROBLEM SET A
Problem 8-1A (50 minutes)
Part 1
Estimated
Market Value
Percent
of Total
Apportioned
Cost
Building ……………………..
$508,800
53%
$477,000
31
Part 2
First year straight-line depreciation on building
Part 3
First year double-declining-balance depreciation on land improvements
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
Wild and Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 8
500
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
3 ………………….
$237,500
$237,500
aStraight- line:
Cost per year = $237,500/4 years = $59,375 per year
Year
Units
Unit Cost
Depreciation
Accum. Depreciation
Book Value
1 …………….
220,000
$0.50
$110,000
$110,000
$147,500
2 …………….
124,600
4 …………….
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
128,750
3 ………
Wild and Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 8
501
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 ………………………
Land grading …………………..
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
**Multiply the percentages in column 3 by the $2,600,000 purchase price.
Part 2
Jan. 1
Land …………………………………………………………….
2,115,800
Building 2 …………………………………………………….
598,000
Building 3 …………………………………………………….
164,000
Part 3
Dec. 31
Depreciation Expense—Building 2 …………………………
26,900
Accumulated Depreciation—Building 2 …………….
26,900
Record depreciation [($598,000 – $60,000)/20].
31
Depreciation Expense—Building 3 …………………………
72,400
Accumulated Depreciation—Building 3 …………….
72,400
Record depreciation [($2,202,000 – $392,000)/25].
31
Depreciation Expense—Land Improv. 1 ………………….
32,500
Accum. Depreciation—Land Improv. 1 ………………
32,500
31
Depreciation Expense—Land Improv. 2 ………………….
Accum. Depreciation—Land Improv. 2 ………………
Wild and Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 8
502
Problem 8-4A (50 minutes)
Year 1
Jan. 1
Equipment ……………………………………………………….
300,600
Cash ……………………………………………………………
300,600
Record loader costs ($287,600 +$11,500 +$1,500).
Equipment ……………………………………………………….
4,800
Cash ………………………………………………………………
4,800
Record betterment of loader.
Dec. 31
Depreciation Expense—Equipment ………………………
70,850*
Accumulated Depreciation—Equipment ………….
70,850
Record depreciation.
*Year 1 depreciation after January 3rd betterment
Total original cost ………………………………………………………….
Plus cost of betterment ………………………………………………….
Revised cost of equipment ……………………………………………..
Less revised salvage ($20,600 + $1,400) ………………………….
Cost to be depreciated ……………………………………………………
Year 2
Jan. 1
Equipment ……………………………………………………….
5,400
Cash ………………………………………………………………
5,400
Record extraordinary repair on loader.
Repairs Expense—Equipment …………………………..
Cash ………………………………………………………………
Record ordinary repair on loader.
Depreciation Expense—Equipment ………………………
Accumulated Depreciation—Equipment ………….
43,590
*Year 2 depreciation after January 1st extraordinary repair
Total cost ($305,400 + $5,400) ……………………………………………………….
$310,800
Less accumulated depreciation ……………………………………………………….
70,850
Book value ……………………………………………………………………………………
239,950
Less salvage value ……………………………………………………………………………….
22,000
Remaining cost to be depreciated ……………………………………………………….
$217,950
Wild and Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 8
503
Problem 8-5A (40 minutes)
Year 1
Jan. 1
Trucks …………………………………………………………………
22,000
Cash ………………………………………………………………
22,000
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
Book value ……………………………………………………………………………………
Revised useful life ……………………………………………………….
Revised remaining useful life ……………………………………………………….
Year 3
Dec. 31
Depreciation Expense—Trucks …………………………..
5,200
Accumulated Depreciation—Trucks ………………..
5,200
Dec. 31
5,300
Accumulated Depreciation—Trucks ……………………..
Record sale of truck.
Record annual depreciation.
Wild and Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 8
504
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
15,000
27,000
Accumulated Depreciation—Machinery ………………..
140,000
Machinery ……………………………………………………….
182,000
50,000
Accumulated Depreciation—Machinery ………………..
140,000
Machinery ……………………………………………………….
182,000
Gain on Sale of Machinery …………………………..
30,000
Accumulated Depreciation—Machinery ………………..
140,000
12,000
Wild and Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 8
505
Problem 8-7A (20 minutes)
a.
July 23
Mineral Deposit ……………………………………………………
4,715,000
Cash ……………………………………………………….
4,715,000
Record purchase of mineral deposit.
July 25
Machinery ……………………………………………………….
Cash ……………………………………………………….
Record costs of machinery.
Dec. 31
Accum. Depletion—Mineral Deposit ………………..
480,000 tons x $0.92 = $441,600].
d.
Dec. 31
Depreciation Expense—Machinery ……………………….
38,400
Accum. Depreciation—Machinery …………………..
38,400
Analysis Component
e. Depreciated over its useful life.
Explanation: If the machine will be used at another site when extraction
Wild and Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 8
Problem 8-8A (20 minutes)
(a)
Jan. 1
Right–of-Use Asset …………………………………………..
270,000
Lease Liability …………………………………………….
270,000
Wild and Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 8
507
PROBLEM SET B
Problem 8-1B (50 minutes)
Part 1
Estimated
Market Value
Percent
of Total
Apportioned
Cost
Building ……………………..
$ 890,000
50%
$ 900,000
Part 2
First year straight-line depreciation on building
[($900,000 – $120,000) / 12 years] = $65,000
Part 3
First year double-declining-balance depreciation on land improvements
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
Wild and Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 8
508
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
3 ……………….
4 ……………….
aStraight- line:
Cost per year = $294,000/5 years = $58,800 per year
bUnits-of-production:
Year
Units
Unit Cost
Depreciation
1 …………..
355,600
$0.20
$ 71,120
2 …………..
320,400
4 …………..
343,600
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
116,640
254,016
294,000
Wild and Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 8
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 ………………
New building……………
New improvements ….
$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].
Depreciation Expense—Building C ………………………
60,000
Accumulated Depreciation—Building C …………..
60,000
Record depreciation [($1,458,000 – $258,000)/20].
Depreciation Expense—Land Improvements B ……..
31,000
31,000
Depreciation Expense—Land Improvements C ……..
10,350
10,350
Record depreciation [$103,500/10].
Wild and Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 8
510
Problem 8-4B (50 minutes)
Year 1
Jan. 1
Equipment …………………………………………………………..
27,670
Cash ………………………………………………………………
27,670
Record costs of van ($25,860 + $1,810).
Jan. 3
Equipment …………………………………………………………..
1,850
Cash ………………………………………………………………
1,850
Record betterment of van.
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.
Cash ………………………………………………………………
Record ordinary repair on van.
3,760*
3,760
*Year 2 depreciation after 1/1 extraordinary repair
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
511
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
Dec. 31
Depreciation Expense—Machinery ……………………….
Accum. Depreciation—Machinery …………………..
27,500
Record depreciation.
*Year 2 depreciation:
Total cost ……………………………………………………………………….
$114,270
Less accumulated depreciation (from Year 1) ……………………
17,425
Book value ……………………………………………………………………..
96,845
Less revised salvage value ………………………………………………
14,345
Remaining cost to be depreciated …………………………..
$ 82,500
Revised useful life ……………………………………………………….
Less 1 year in Year 1 ……………………………………………………….
Revised remaining useful life …………………………………………..
Year 3
Dec. 31
Depreciation Expense—Machinery ……………………….
27,500
Accumulated Depreciation—Machinery …………..
27,500
Record depreciation.
Dec. 31
Cash ……………………………………………………………………
25,240
Accumulated Depreciation—Machinery ………………..
Record sale of machine.
**Accumulated depreciation on machine at 12/31/Year 3:
Year 1 ……………………………………………………………………
$ 17,425
Year 2 ……………………………………………………………………
27,500
Year 3 ……………………………………………………………………
27,500
***Book value of machine at 12/31/Year 3:
Total cost ………………………………………………………………
$114,270
Less accumulated depreciation ………………………………
Book value ……………………………………………………………
$ 41,845
Loss ($25,240 cash received – $41,845 book value) …..
$ 16,605