2. Real estate acquired as speculation should be listed in the balance sheet under the caption
“Investments,” below the Current Assets section.
4. Capital expenditures include the cost of acquiring fixed assets and the cost of improving an
asset. These costs are recorded by increasing (debiting) a fixed asset account. Capital
5. Capital expenditure
7. a. No
b. No
8. a. An accelerated depreciation method is most appropriate for situations in which the decline
in productivity or earning power of the asset is proportionately greater in the early years of
9. a. No, the accumulated depreciation for an asset cannot exceed the cost of the asset. To do so
would create a negative book value, which is meaningless.
10. a. Over the shorter of its legal life or years of usefulness.
CHAPTER 9
FIXED ASSETS AND INTANGIBLE ASSETS
DISCUSSION QUESTIONS
9-1
CHAPTER 9 Fixed Assets and Intangible Assets
PE 9–1A
7 Delivery Truck 1,675
PE 9–1B
14 Accumulated Depreciation—Delivery Van 2,300
PE 9–2A
a. $295,000 ($340,000 – $45,000)
PE 9–2B
PE 9–3A
PE 9–3B
Feb.
PRACTICE EXERCISES
Aug.
CHAPTER 9 Fixed Assets and Intangible Assets
PE 9–4A
PE 9–4B
PE 9–5A
PE 9–5B
PE 9–6A
a. $28,000 [($465,000 – $45,000) ÷ 15]
9-3
CHAPTER 9 Fixed Assets and Intangible Assets
PE 9–6B
a. $75,000 = $600,000 × [(1 ÷ 16) × 2)] = $600,000 × 12.5%
b. $20,625 gain, computed as follows:
Cost……………………………………………
…
$600,000
PE 9–7A
a. $0.30 per ton = $127,500,000 ÷ 425,000,000 tons
PE 9–7B
a. $1.04 per ton = $494,000,000 ÷ 475,000,000 tons
CHAPTER 9 Fixed Assets and Intangible Assets
PE 9–8A
a. Dec. 31 Loss from Impaired Goodwill 4,000,000
Goodwill 4,000,000
Impaired goodwill.
PE 9–8B
a. Dec. 31 Loss from Impaired Goodwill 6,000,000
Goodwill 6,000,000
Impaired goodwill.
PE 9–9A
a. Fixed Asset Turnover:
Sales……………………………
…
Fixed assets:
Beginning of year…………
2016 2015
$5,510,000 $4,880,000
$1,600,000 $1,450,000
9-5
CHAPTER 9 Fixed Assets and Intangible Assets
PE 9–9B
a. Fixed Asset Turnover:
Revenue………………………
…
Fixed assets:
Beginning of year………
…
2016 2015
$1,668,000 $1,125,000
$ 670,000 $ 580,000
9-6
…
CHAPTER 9 Fixed Assets and Intangible Assets
Ex. 9–1
a. New printing press: 1, 2, 3, 5, 6
b. Used printing press: 7, 8, 9, 11
Ex. 9–2
Ex. 9–3
Initial cost of land ($75,000 + $90,000)………………………
…
$165,000
Plus: Legal fees………………………………………………
…
$ 2,500
…
Ex. 9–4
Capital expenditures: 3, 4, 5, 6, 7, 9, 10
EXERCISES
9-7
CHAPTER 9 Fixed Assets and Intangible Assets
Ex. 9–6
Mar. 20 Accumulated Depreciation—Delivery Truck 1,890
Cash 1,890
June 11 Delivery Truck 1,350
Ex. 9–7
a. No. The $44,500,000 represents the original cost of the equipment. Its
replacement cost, which may be more or less than $44,500,000, is not
Ex. 9–8
(a) 25% (1 ÷ 4), (b) 12.5% (1 ÷ 8), (c) 10% (1 ÷ 10), (d) 6.25% (1 ÷ 16), (e) 4% (1 ÷ 25),
Ex. 9–9
$2,600 [($48,000 – $9,000) ÷ 15]
9-8
CHAPTER 9 Fixed Assets and Intangible Assets
Ex. 9–11
a. Depreciation Rate per Mile:
Miles Operated
21,000
Ex. 9–12
a.
Ex. 9–13
a. 5% of ($75,000 – $10,000) = $3,250 or [($75,000 – $10,000) ÷ 20]
$0.26
First Year
4% of $120,000 = $4,800
Credit to
$ 5,460
5,360
Rate per Mile Depreciation
Accumulated
Truck No.
1
Second Year
4% of $120,000 = $4,800
9-9
CHAPTER 9 Fixed Assets and Intangible Assets
Ex. 9–14
a. Year 1: 9 ÷ 12 × [($40,000 – $8,000) ÷ 8] = $3,000
Year 2: ($40,000 – $8,000) ÷ 8 = $4,000
Ex. 9–16
a. Apr. 30 Carpet 18,000
Cash 18,000
Ex. 9–17
a. Cost of equipment…………………………………………………………………
…
$140,000
Accumulated depreciation at December 31, 2016
…
9-10
CHAPTER 9 Fixed Assets and Intangible Assets
Ex. 9–18
a. 2013 depreciation expense: $22,500 [($425,000 – $65,000) ÷ 16]
b. $357,500 [$425,000 – ($22,500 × 3)]
c. Cash 340,000
Accumulated Depreciation—Equipment 67,500
9-11
CHAPTER 9 Fixed Assets and Intangible Assets
Ex. 9–21
a. Property, Plant, and Equipment (in millions):
Current Preceding
Year Year
Land and buildings………………………………………………
…
$ 2,439 $ 2,059
Machinery, equipment, and internal-use software…………
…
15,743 6,926
b. We would expect Apple’s book value of fixed assets to increase during the
year as its sales increase. Although additional depreciation expense will
reduce the book value, most companies, such as Apple, invest in new assets
Ex. 9–22
2. Land does not depreciate.
3. Patents and goodwill are intangible assets that should be listed in a separate
9-12
…
CHAPTER 9 Fixed Assets and Intangible Assets
Ex. 9–23
Ex. 9–24
a. Best Buy: 13.90 ($50,705 ÷ $3,647)
Ex. 9–25
a. Price (fair market value) of new equipment……………………
…
$275,000
Trade-in allowance of old equipment…………………………… 90,000
Cash paid on the date of exchange……………………………
…
$185,000
…
…
a.
Revenue
Average Book Value of Fixed Assets
=Fixed Asset Turnover Ratio
9-13
CHAPTER 9 Fixed Assets and Intangible Assets
Ex. 9–26
a. Price (fair market value) of new equipment……………………
…
$275,000
Trade-in allowance of old equipment…………………………… 90,000
Cash paid on the date of exchange……………………………
…
$185,000
Ex. 9–27
a. Depreciation Expense—Equipment 6,000
Accumulated Depreciation—Equipment 6,000
Equipment depreciation ($12,000 × 6 ÷ 12).
b. Accumulated Depreciation—Equipment 126,000
9-14
…
…
CHAPTER 9 Fixed Assets and Intangible Assets
Prob. 9–1A
1. Land Other
Item Land Improvements Building Accounts
a. $ 2,500
b. 340,000
c. 15,500
n. 2,000
o. 2,500
p.* (7,500)
q. 800,000
* Receipt.
3. Because land used as a plant site does not lose its ability to provide services,
4. Because Land Improvements are depreciated, depreciation expense of $1,200
($12,000 × 1 ÷ 20 × 2) would be overstated, and net income would be understated
PROBLEMS
9-15
CHAPTER 9 Fixed Assets and Intangible Assets
Prob. 9–2A
1.
a. Straight- b. Units-of- c. Double-
Line Output Declining-Balance
Year Method Method Method
2014 $28,000 $37,380 $60,000
Calculations:
Straight-line method:
($90,000 – $6,000) ÷ 3 = $28,000 each year
Units-of-output method:
Double-declining-balance method:
2014: $90,000 × 2 ÷ 3 = $60,000
2. The double-declining-balance method yields the most depreciation expense in
2014 of $60,000.
3. Over the three-year life of the equipment, all three depreciation methods yield
Depreciation Expense
9-16
CHAPTER 9 Fixed Assets and Intangible Assets
Prob. 9–3A
a. Straight-line method:
2014: [($270,000 – $9,000) ÷ 3] × 9 ÷ 12…………………………………
…
$65,250
2015: ($270,000 – $9,000) ÷ 3………………………………………………
…
87,000
b. Units-of-output method:
2014: 7,500 hours × $14.50*………………………………………………
…
$108,750
c. Double-declining-balance method:
2014: $270,000 × 2 ÷ 3 × 9 ÷ 12……………………………………………
…
$135,000
…
…
…
…