Wild and Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 8
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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.
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
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
6. The Modified Accelerated Cost Recovery System is not generally acceptable for financial
7. Ordinary repairs are made to keep a plant asset in normal, good operating condition, and
8. A company might sell or exchange an asset when it reaches the end of its useful life, or
9. The process of allocating the cost of natural resources to expense over the periods
when they are consumed is called depletion. The method to compute depletion is similar
to units-of–production depreciation.
Wild and Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 8
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.
12. Intangible assets are generally recorded at their cost and amortized over their predicted
useful life. (However, some costs are not included, such as the research and
13. A company has goodwill when its value exceeds the value of its individual assets and
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
15. Total asset turnover is calculated by dividing net sales by average total assets.
Financial statement users can use total asset turnover to evaluate the efficiency of a
company in using its assets to generate sales.
16. The word “net” means that Apple is reporting its property and equipment after deducting
accumulated depreciation to date.
18. Samsung titles its plant assets “Property, plant and equipment.” The book value of its
plant assets is ₩111,665,648 (KRW millions).
20. (a) The main difference between plant assets and current assets is that current assets
are consumed or converted into cash within a short period of time, while plant assets
have a useful life of more than one accounting period.
Wild and Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 8
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QUICK STUDIES
Quick Study 8-1 (10 minutes)
Quick Study 8-2 (10 minutes)
Expensed or Capitalized Asset Category (if any) .
1. Expensed —
Quick Study 8-3 (10 minutes)
Quick Study 8-4 (10 minutes)
Wild and Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 8
Quick Study 8-5 (10 minutes)
Note: Double-declining-balance rate = (100% / 8 years) x 2 = 25%
First year:
Quick Study 8-6 (10 minutes)
1. Straight-line depreciation for the first year.
Quick Study 8-7 (10 minutes)
$65,800
Cost
Quick Study 8-8 (10 minutes)
Impairment Loss …………………………………………………….
1,250
Wild and Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 8
Quick Study 8-9 (10 minutes)
1. (a) CE Capital expenditure
2.
(a) Equipment……………………………………………………….
40,000
Cash ……………………………………………………….
40,000
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
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 & Managerial Accounting, 8e Solutions Manual: Chapter 8
Quick Study 8-11 (10 minutes)
1.
Ore Mine ………………………………………………………………..
1,800,000
1,800,000
2.
Quick Study 8-12 (10 minutes)
a. Oil well NR
b. Trademark IA
Quick Study 8-13 (10 minutes)
1.
2.
Dec. 31
Amortization Expense–Leasehold Improvements …………
13,125
Accumulated Amortization—Leasehold
$1,800,000 – $200,000
13,125
Wild and Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 8
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Quick Study 8-14 (15 minutes)
WESTEROS CO.
Income Statement
For Year Ended December 31
Revenues
Sales …………………………………………………… $30,000
Quick Study 8-15 (10 minutes)
b. Worse.
Explanation: Aneko’s turnover of 0.80 times is markedly lower than its
($19,100 + $17,900) / 2
Wild and Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 8
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) ………………………………………….
Cash ………………………………………………………….
2.
Machinery (new) ………………………………………………..
52,000
Accumulated Depreciation–Machinery (old) ……….
18,400
Gain on Exchange of Assets* …………………….
6,000
Machinery (old) ………………………………………….
Cash ………………………………………………………….
Wild and Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 8
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 & Managerial Accounting, 8e 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)
Exercise 8-5 (10 minutes)
Units–of-production
Wild and Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 8
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Exercise 8-6 (15 minutes)
Double-declining-balance
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 ….
Wild and Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 8
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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 2 ……..
88,500
38,960
49,540
Year 3 ……..
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 3 ……..
Year 4 ……..
80,606
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)
Wild and Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 8
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 …………………………..
(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)
Wild and Shaw, Financial & Managerial Accounting, 8e 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
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
Wild and Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 8
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
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 & Managerial Accounting, 8e Solutions Manual: Chapter 8
Exercise 8-17 (25 minutes)
2023
July 1
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
Wild and Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 8
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Exercise 8-18 (10 minutes)
405,528
$2.44 per ton; 166,200 tons x $2.44 = $405,528].
Dec. 31
Depreciation Expense—Machinery ………………………
23,268
$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
Amortization Expense—Copyright ……………………….
41,800
Accumulated Amortization—Copyright …………….
Exercise 8-20 (10 minutes)
1. Goodwill = $2,500,000 – $1,800,000 = $700,000
Wild and Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 8
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Exercise 8-21 (15 minutes)
GREGOR CO.
Balance Sheet
December 31
Assets
Current assets
Cash ……………………………………………………………… $ 6,000
Plant assets
Equipment …………………………………………………….. $20,000
Liabilities
Current liabilities
Accounts payable ………………………………………….. $ 2,000
Long-term liabilities
Wild and Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 8
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Exercise 8-22 (15 minutes)
b. Better.
Analysis: Lok turned its assets over 1.23 (4.59 – 3.36) more times in Year 3 than
Exercise 8-23A (15 minutes)
1. Book value of the old tractor ($96,000 – $52,500) …………………….. $ 43,500
3. Debit to new Tractor account
Cash paid + Trade-in allowance ($83,000 + $29,000) ………….. $112,000
Alternatively, answers can be taken from the following journal entry:
Wild and Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 8
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
2. $25,000 trade-in allowance exceeds book value (yielding a gain)
Jan. 2
Machinery (new) …………………………………………………..
60,200
Accumulated Depreciation—Machinery (old) …………
24,625
3. $15,000 trade-in allowance is less than book value (yielding a loss)
Jan. 2
Machinery (new) …………………………………………………..
60,200