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b.
c.
29,000$
2. 200% Declining-Balance:
29,000$
3. 150% Declining-Balance:
29,000$
PROBLEM 9.2A
SWANSON & HILLER, INC. (concluded)
Computation of gains or losses upon disposal:
Cash proceeds
Swanson & Hiller will probably use the straight-line method for financial reporting
purposes, as this method results in the least amount of depreciation expense in the
early years of the asset’s useful life.
1. Straight-Line
Cash proceeds
Cash proceeds
12,000$
Book
Value
$600 $600 $15,400
Accumulated Book
Depreciation Value
$800 $800 $15,200
Accumulated Book
Depreciation Value
$600 $600 $15,400
Year
2018
Depreciation
Expense
(2) 200% Declining-Balance (half-year convention):
Computation
(3) 150% Declining-Balance (half-year convention):
$16,000 x 10% x 1/2
Year
2018
PROBLEM 9.3A
50 Minutes, Strong
Accumulated
Depreciation
Depreciation
Expense
a. Costs to be depreciated include:
Cost of shelving
$16,000 x 7.5% x 1/2
HILLS HARDWARE
(1) Straight-Line Schedule (nearest whole month):
Depreciation
Expense
Computation
Computation
$16,000 x 1/20 x 9/12
Year
2018
b.
c.
1. Journal entry assuming that the shelving was sold for $1,100:
1,100
8,600
2. Journal entry assuming that the shelving was sold for $175:
175
PROBLEM 9.3A
HILLS HARDWARE (concluded)
Hills Hardware may use the straight-line method in its financial statements to
The 200% declining-balance method results in the lowest reported book value at
Cash
Accumulated Depreciation: Shelving
Cash
25 Minutes, Medium
Aug 15* Vehicles (new truck) 38,000
Accumulated Depreciation: Vehicles (old truck) 18,000
Vehicles (old truck) 26,000
Gain on Disposal of Plant Assets 2,000
Cash 28,000
To record trade-in of old truck on new; trade-in
allowance exceeded book value by $2,000.
*
b.
c.
Gains and losses on asset disposals do not affect gross profit because they are not part of
Unlike realized gains and losses on asset disposals, unrealized gains and losses on
PROBLEM 9.4A
a.
General Journal
HITCHCOCK DEVELOPERS
An alternative for the Aug. 15 transaction is to assign a cost to the new vehicle of $39,000 and increase the gain to
25 Minutes, Medium
a.
b.
c.
d.
PROBLEM 9.5A
REDDICK CORPORATION
Intangible asset. A patent grants its owner the exclusive right to produce a particular
Operating expense. Although the training of employees probably has some benefit
Intangible asset. Goodwill represents the expected value of future earnings in excess of
Operating expense. Because of the uncertainty surrounding the potential benefits of R&D
programs, research and development costs are charged to expense in the period in which
20 Minutes, Medium
220,000$
9.25
c.
PROBLEM 9.6A
KIVI SERVICE STATIONS
b. Estimated goodwill associated with the purchase of Gas N’Go:
a. Estimated goodwill associated with the purchase of Joe’s Garage:
Actual average net income per year
Typical sales multiplier
Due to the difficulties in objectively estimating the value of goodwill, it is recorded only when
it is purchased. Kivi may actually have generated internally a significant amount of goodwill
30 Minutes, Medium
a.
b. $20,000
c.
PROBLEM 9.7A
THAXTON, INC.
Depreciation expense for the first two years under the three depreciation methods is
determined as follows:
Straight-line:
The units of output method is directly tied to the miles driven rather than calendar time
Truck
30 Minutes, Medium
a.
$275,000
75,000
c.
$350,000
(52,500) $297,500
Less: Accumulated depreciation
Plant and intangible asset sections of the balance sheet:
PROBLEM 9.8A
ROTHCHILD, INC.
Depreciation is calculated on the following amount:
Purchase price
Plus: Expenditures to prepare asset for use
Year 1:
Equipment
a.
b. (1)
(4)
(5)
SOLUTIONS TO PROBLEMS SET B
PROBLEM 9.1B
SMITHFIELD HOTEL
The accidental damage to the equipment was not a “reasonable and necessary” part of
the installation process and, therefore, should not be included in the cost of the
25 Minutes, Easy
The cost of plant and equipment includes all expenditures that are reasonable and necessary
The purchase price of $37,000 ($42,000 - $5,000) is part of the cost of the equipment.
To be used in hotel operations, the equipment must first be installed. Thus,
c.
Equipment account:
Dec 31 4,060
PROBLEM 9.1B
SMITHFIELD HOTEL (concluded)
Expenditures that should be debited to the
d.
Depreciation Expense: Equipment
Book
Year Value
1 $17,000 $17,000 $163,000
Accumulated Book
Year Depreciation Value
1 $36,000 $36,000 $144,000
Accumulated Book
Year Depreciation Value
1 $27,000 $27,000 $153,000
2 45,900 72,900 107,100
153,000 x 30%
Depreciation
Expense
$180,000 x 30% x 1/2
Depreciation
Expense
Computation
$180,000 x 40% x 1/2
(3) 150% Declining-Balance Schedule:
Computation
(2) 200% Declining-Balance Schedule:
Depreciation
Expense
Computation
PROBLEM 9.2B
45 Minutes, Medium
R & R, INC.
a. (1) Straight-Line Schedule:
Accumulated
Depreciation
$170,000 x 1/5 x 1/2
b.
c.
$ 58,000
2. 200% Declining-Balance:
$ 58,000
3. 150% Declining-Balance:
$ 58,000
R & R, Inc. will probably use the straight-line method for financial reporting
1. Straight-Line
Cash proceeds
Cash proceeds
PROBLEM 9.2B
R & R, INC. (concluded)
Computation of gains or losses upon disposal:
Cash proceeds
