11-21
E11-12 (continued)
Difference in 2010:
E11-13
Note to Instructor: This exercise assumes simple knowledge of material in
Chapter 5 and Chapter 23.
1. Change in estimate–accounted for prospectively:
2. Change in depreciation method—accounted for prospectively:
E11-13 (continued)
2. (continued)
3. Error—accounted for as a prior period adjustment:
E11-14
1. Depletion cost per ton:
E11-14 (continued)
2. Total cost of inventory:
3. Total cost of goods sold:
E11-15 (AICPA adapted solution)
SOLUTIONS TO PROBLEMS
P11-1
1. Straight-line:
2. Hours worked:
3. Units of output:
4. Sum-of-the-years’-digits:
5. Double-declining balance:
11-25
P11-1 (continued)
6. 150% declining balance:
7. Straight-line:
Hours worked:
Units of output:
11-26
P11-1 (continued)
7. (continued)
Sum-of-the-years’ digits
Double-declining balance:
150%-declining balance:
P11-2
1. Straight-line:
P11-2 (continued)
2. Hours worked:
3. Units of output:
SCHEDULE
Method Beginning Book Value Depreciation
Ending Book Value
Straight-line
2010
$70,000
$7,500
$62,500
P11-3
1. Straight-line method:
2. Sum-of-the-years’-digits method:
11-28
P11-3 (continued)
3. Double-declining balance method:
4. 150%-declining balance method:
SCHEDULE
Method
Beginning Book
Value
Depreciation
Ending Book
Value
Straight-line
2010
$250,000
$11,500
$238,500
5. Straight-line:
11-29
P11-3 (continued)
5. (continued)
Return on total assets, 2011 = Net income ÷ Total assets
Double-declining balance:
150%-declining balance:
The rate of return increases each year because the book value of the asset
declines each year, making the denominator of the calculation smaller. For the
accelerated methods, the numerator also declines, but by a smaller amount.
2. Depreciation
1st year: $8,000 x 50% = $4,000
P11-5
Note to Instructor: For requirements 2 and 3, if a company has a policy of switching
1. Depreciation
Straight-line rate = 1/8 = 12.5%
Double-declining rate = 2 x 12.5% = 25%
2010: ($20,000) x 25% = $5,000
2. Change to straight-line method
2010: ($20,000) x 25% = $5,000
P11-5 (continued)
2. (continued)
Switch to straight line at beginning of 2014
3. Changing to the straight-line method at the beginning of the fifth year resulted
in lower depreciation in the fifth year. Changing at the beginning of the sixth
year produces the following results.
2010: ($20,000) x 25% = $5,000
P11-6
Straight-line rate = 1/10 = 10%
11-32
P11-7
2008
2009
2010
C: Double-declining balance: $100,000 x (2 x 10%) x ½ = $10,000
2011 Sale of A – half year’s depreciation = $3,600 x ½ = $1,800
11-33
P11-7 (continued)
Depreciation Expense 27,022
Accumulated Depreciation 27,022
P11-8
1. 2010
aCalculation of depreciation:
Cost
Residual
Value
Life
Annual
Depreciation
$ 16,000
$ 8,000
2
$ 4,000
2011
Jan. 1 Accumulated Depreciation: Trucks 4,000
Cash 4,000
Trucks 8,000
11-34
P11-8 (continued)
1. (continued)
Dec. 31 Depreciation Expense 28,880b
Accumulated Depreciation: Trucks 28,880
b19% x ($160,000 – $8,000)
2012
2014
Jan. 1 Accumulated Depreciation: Trucks 34,000
Cash 6,000
Trucks 40,000
11-35
P11-8 (continued)
1. (continued)
2016
Jan. 1 Accumulated Depreciation: Trucks 15,000
2. 2010
Jan. 2 Trucks 160,000
Cash 160,000
2011
Jan. 1 Accumulated Depreciation: Trucks 4,000
Cash 4,000
Trucks 8,000
11-36
P11-8 (continued)
2. (continued)
Dec. 31 Depreciation Expense 25,600c
Accumulated Depreciation: Trucks 25,600
c20% x ($152,000 – $24,000)
2013
Dec. 31 Depreciation Expense 8,000e
Accumulated Depreciation: Trucks 8,000
e20% x ($80,000 – $40,000)
2015
Jan. 1 Accumulated Depreciation: Trucks 20,000
P11-9
1. 2012
Jan. 1 Cash 400
2. 2012
3. 2012
Dec. 31 Depreciation Expense 14,720a
Accumulated Depreciation: Equipment 14,720
To record depreciation expense.
P11-10
1. Impairment Test (December 31, 2010)
Factory cost $180,000
Less: Accumulated depreciation
P11-10 (continued)
1. (continued)
Undiscounted expected net cash flows = 8 years x ($400,000 cash inflows –
$295,000 cash outflows)
= 8 x $105,000
2. Loss from Impairment 322,398
Accumulated Depreciation: Factory 36,000
Accumulated Depreciation: Machinery 300,000
3. Measurement of the Impairment Loss
Present value of the expected 105,000 x 3.684736 (n=6, i=0.16
11-39
P11-10 (continued)
4. Impairment Test (December 31, 2010)
Factory cost $180,000
Less: Accumulated depreciation
(6 years x $6,000) (36,000)
5. The fair value of the building less costs to sell = $120,000 – $5,000
= $115,000
The fair value of the machinery less costs to sell = $450,000 – $12,000
P11-11
1. 2010 2011 2012 2013 2014
Sales $100,000 $100,000 $100,000 $100,000 $100,000
Cost of goods sold (60,000)
(60,000)
(60,000) (60,000) (60,000)
11-40
P11-11 (continued)
2. 2010 2011 2012 2013 2014
Sales $100,000 $100,000 $100,000 $100,000 $100,000
Cost of goods sold (60,000)
(60,000)
(60,000)
(60,000) (60,000)
Note to Instructor: The total effect on pretax accounting income for the years
2010 through 2014 for financial reporting is the same as the total effect on
taxable income. The different amounts of depreciation for financial reporting
and income tax reporting in each year are offset by the difference in the loss on
disposal for financial reporting and the gain on disposal for income taxes in the
last year.
P11-12