Chapter 8 ACC
A company purchased property for $100,000. The property included a building, a parking lot, and land. The building was appraised at $54,500; the land at $51,000, and the parking lot at $19,500. Land should be recorded in the accounting records with an allocated cost of:
$100,000 × $51,000/($54,500 + $51,000 + $19,500) = $40,800
Marlow Company purchased a point of sale system on January 1 for $5,800. This system has a useful life of 5 years and a salvage value of $600. What would be the depreciation expense for the second year of its useful life using the double-declining-balance method?
***$1,392*** Depreciation Expense = Beginning of Year Book Value × Double Straight-line RateDepreciation Expense = $5,800 × (2 × 20%) = $2,320 (Year 1, depreciation) Depreciation Expense = Beginning of Year Book Value × Double Straight-line RateDepreciation Expense = ($5,800 − $2,320) × (2 × 20%) = $1,392 (Year 2, depreciation)
A machine originally had an estimated useful life of 9 years, but after 2 complete years, it was decided that the original estimate of useful life should have been 12 years. At that point the remaining cost to be depreciated should be allocated over the remaining:
12 year revised life − 2 years depreciated = 10 years remaining
A company used straight-line depreciation for an item of equipment that cost $21,000, had a salvage value of $6,000 and a six-year useful life. After depreciating the asset for three complete years, the salvage value was reduced to $2,100 but its total useful life remained the same. Determine the amount of depreciation to be charged against the equipment during each of the remaining years of its useful life:
Accumulated Depreciation through the end of year 3: (Cost of Asset − Salvage Value)/Estimated Useful Life × Years Elapsed ($21,000 − $6,000)/6 × 3 = $7,500 Depreciation, years 4 through 6 = (Cost of Asset - Accumulated Depreciation - SalvageValue)/Remaining Estimated Useful Life ($21,000 − $7,500 − $2,100)/3 = $3,800
When originally purchased, a vehicle costing $25,380 had an estimated useful life of 8 years and an estimated salvage value of $2,900. After 4 years of straight-line depreciation, the asset's total estimated useful life was revised from 8 years to 6 years and there was no change in the estimated salvage value. The depreciation expense in year 5 equals:
Accumulated Depreciation through the end of year 4 (Cost of Asset − Salvage Value)/Estimated Useful Life × Years Elapsed ($25,380 − $2,900)/8 × 4 = $11,240 Depreciation in Year 5 = (Cost of Asset − Accumulated Depreciation − Salvage Value)/Remaining Estimated Useful Life ($25,380 − $11,240 − $2,900)/2 = $5,620
Phoenix Agency leases office space. On January 3, Phoenix incurs $71,400 to improve the leased office space. These improvements are expected to yield benefits for 8 years. Phoenix has 6 years remaining on its lease. Compute the amount of expense that should be recorded the first year related to the improvements.
Amortization Expense = Cost/Lesser of Estimated Useful Life or Remaining Lease Length Amortization Expense = $71,400/6 = $11,900
Granite Company purchased a machine costing $126,000, terms 1/10, n/30. The machine was shipped FOB shipping point and freight charges were $2,600. The machine requires special mounting and wiring connections costing $10,600. When installing the machine, $2,100 in damages occurred. Compute the cost recorded for this machine assuming Granite paid within the discount period.
Cost of Machine = ($126,000 × 0.99) + $2,600 + $10,600 = $137,940
A company discarded a computer system originally purchased for $9,000. The accumulated depreciation was $6,200. The company should recognize a (an):
Cost of computer system$9,000 Accumulated depreciation (6,200) Book value$2,800 Cash received (0) Loss on disposal$2,800 $2,800 loss.
A company sold equipment that originally cost $400,000 for $160,000 cash. The accumulated depreciation on the equipment was $240,000. The company should recognize a:
Cost of equipment$400,000 Accumulated depreciation (240,000) Book value$160,000 Cash received (160,000) Gain or Loss on sale$0 $0 gain or loss.
A company had a tractor destroyed by fire. The tractor originally cost $138,000 with accumulated depreciation of $71,700. The proceeds from the insurance company were $33,000. The company should recognize:
Cost of tractor$138,000 Accumulated depreciation (71,700) Book value$66,300 Cash received 33,000 Loss$33,300 A loss of $33,300.
Gaston owns equipment that cost $32,000 with accumulated depreciation of $25,600. Gaston sells the equipment for $5,800. Which of the following would not be part of the journal entry to record the disposal of the equipment?
Credit Gain on Disposal of Equipment $600. Gain/Loss on Sale = Cash Received − Book ValueGain/Loss on Sale = $5,800 − ($32,000 − $25,600); Loss of $600
Crestfield leases office space. On January 3, the company incurs $35,000 to improve the leased office space. These improvements are expected to yield benefits for 20 years. Crestfield has 10 years remaining on its lease. What journal entry would be needed to record the expense for the first year related to the improvements?
Debit Amortization Expense $3,500; credit Accumulated Amortization-Leasehold Improvements $3,500. Amortization Expense = Cost/Lesser of Estimated Useful Life or Remaining Length of LeaseAmortization Expense = $35,000/10 = $3,500
A company purchased a tract of land for its natural resources at a cost of $1,572,500. It expects to mine 2,030,000 tons of ore from this land. The salvage value of the land is expected to be $253,000. The depletion expense per ton of ore is:
Depletion Expense per ton = (Cost − Salvage Value)/Estimated Useful Life (in tons) Depletion Expense per ton = ($1,572,500 − $253,000)/2,030,000 tons = $0.650/ton
A company purchased a delivery van for $18,200 with a salvage value of $2,200 on September 1, Year 1. It has an estimated useful life of 5 years. Using the straight-line method, how much depreciation expense should the company recognize on December 31, Year 1?
Depreciation Expense = (Cost − Salvage Value)/Est Useful Life × Length of OwnershipDepreciation Expense = ($18,200 − $2,200)/5 × 4/12; Depreciation Expense = $1,067
Wickland Company installs a manufacturing machine in its production facility at the beginning of the year at a cost of $141,000. The machine's useful life is estimated to be 20 years, or 400,000 units of product, with a $9,000 salvage value. During its second year, the machine produces 16,000 units of product. Determine the machines' second year depreciation under the straight-line method.
Depreciation Expense = (Cost − Salvage Value)/Estimated Useful Life Depreciation Expense = ($141,000 − $9,000)/20 = $6,600
Mohr Company purchases a machine at the beginning of the year at a cost of $29,000. The machine is depreciated using the straight-line method. The machine's useful life is estimated to be 5 years with a $7,000 salvage value. The book value of the machine at the end of year 2 is:
Depreciation Expense = (Cost − Salvage Value)/Estimated Useful Life Depreciation Expense = ($29,000 − $7,000)/5 = $4,400 per year Book value at end of year 2 = Cost - Accumulated Depreciation Book value at end of year 2 = $29,000 − ($4,400 × 2) = $20,200 *20,200*
Peavey Enterprises purchased a depreciable asset for $29,500 on April 1, Year 1. The asset will be depreciated using the straight-line method over its four-year useful life. Assuming the asset's salvage value is $3,500, Peavey Enterprises should recognize depreciation expense in Year 2 in the amount of:
Depreciation Expense = (Cost − Salvage Value)/Estimated Useful Life Depreciation Expense = ($29,500 − $3,500)/4 = $6,500
Mohr Company purchases a machine at the beginning of the year at a cost of $42,000. The machine is depreciated using the straight-line method. The machine's useful life is estimated to be 8 years with a $4,000 salvage value. Depreciation expense in year 2 is:
Depreciation Expense = (Cost − Salvage Value)/Estimated Useful Life Depreciation Expense = ($42,000 − $4,000)/8 = $4,750
Martin Company purchases a machine at the beginning of the year at a cost of $71,000. The machine is depreciated using the straight-line method. The machine's useful life is estimated to be 4 years with a $4,000 salvage value. Depreciation expense in year 4 is:
Depreciation Expense = (Cost − Salvage Value)/Estimated Useful Life Depreciation Expense = ($71,000 − $4,000)/4 = $16,750
Martin Company purchases a machine at the beginning of the year at a cost of $73,000. The machine is depreciated using the straight-line method. The machine's useful life is estimated to be 5 years with a $6,000 salvage value. The book value of the machine at the end of year 5 is:
Depreciation Expense = (Cost − Salvage Value)/Estimated Useful Life Depreciation Expense = ($73,000 − $6,000)/5 = $13,400 per year Book value at end of year 5 = Cost − Accumulated Depreciation Book value at end of year 5 = $73,000 − ($13,400 × 5) = ***$6,000***
Mohr Company purchases a machine at the beginning of the year at a cost of $31,000. The machine is depreciated using the units-of-production method. The company estimates it will use the machine for 5 years, during which time it anticipates producing 45,000 units. The machine is estimated to have a $4,000 salvage value. The company produces 9,700 units in year 1 and 6,700 units in year 2. Depreciation expense in year 2 is:
Depreciation Expense = (Cost − Salvage Value)/Estimated Useful Life (units) Depreciation Expense = ($31,000 − $4,000)/45,000 = $0.60 per unit Depreciation Expense = $0.60 per unit × 6,700 units = $4,020
Martin Company purchases a machine at the beginning of the year at a cost of $146,000. The machine is depreciated using the double-declining-balance method. The machine's useful life is estimated to be 4 years with a $12,100 salvage value. The machine's book value at the end of year 3 is:
Depreciation Expense = Beginning of Year Book Value × Double Straight-line Rate Depreciation Expense = $146,000 × (2 × 25%) = $73,000 (Depreciation Expense, year 1)Depreciation Expense = Beginning of Year Book Value × Double Straight-line Rate Depreciation Expense = ($146,000 − $73,000) × (2 × 25%) = $36,500 (Deprec. Exp, year 2)Depreciation Expense = Beginning of Year Book Value * Double Straight-line Rate Depreciation Expense = ($146,000 − $109,500) × (2 × 25%) = $18,250 (Deprec. Exp, year 3) Book Value at end of year 3 = Cost minus Accumulated DepreciationBook Value at end of year 3 = $146,000 − ($73,000 + $36,500 + $18,250) Book Value at end of year 3 = ***$18,250***
Mohr Company purchases a machine at the beginning of the year at a cost of $23,000. The machine is depreciated using the double-declining-balance method. The machine's useful life is estimated to be 5 years with a $8,000 salvage value. The machine's book value at the end of year 2 is:
Depreciation Expense = Beginning of Year Book Value × Double Straight-line Rate Depreciation Expense = $23,000 × (2 × 20%) = $9,200 (Depreciation Expense, year 1) Depreciation Expense = Beginning of Year Book Value × Double Straight-line Rate Depreciation Expense = ($23,000 − $9,200) × (2 × 20%) = $5,520 (Depreciation Expense, year 2) Book value at end of year 2 = Cost − Accumulated Depreciation Book value at end of year 2 = $23,000 − ($9,200 + $5,520) = ***$8,280***
Mohr Company purchases a machine at the beginning of the year at a cost of $30,000. The machine is depreciated using the double-declining-balance method. The machine's useful life is estimated to be 8 years with a $5,000 salvage value. Depreciation expense in year 2 is:
Depreciation Expense = Beginning of Year Book Value × Double Straight-line Rate Depreciation Expense = $30,000 × (2 × 12.5%) = $7,500 (Depreciation Expense, year 1) Depreciation Expense = Beginning of Year Book Value × Double Straight-line Rate Depreciation Expense = ($30,000 − $7,500) × (2 × 12.5%) = $5,625 (Depreciation Expense, year 2) *5625**
Martin Company purchases a machine at the beginning of the year at a cost of $80,000. The machine is depreciated using the double-declining-balance method. The machine's useful life is estimated to be 4 years with a $6,600 salvage value. Depreciation expense in year 4 is:
Depreciation Expense = Beginning of Year Book Value × Double Straight-line Rate Depreciation Expense = $80,000 × (2 × 25%) = $40,000 (Depreciation Expense, year 1) Depreciation Expense = Beginning of Year Book Value × Double Straight-line Rate Depreciation Expense = ($80,000 − $40,000) × (2 × 25%) = $20,000 (Depreciation Expense, year 2) Depreciation Expense = Beginning of Year Book Value × Double Straight-line Rate Depreciation Expense = ($80,000 − $60,000) × (2 × 25%) = $10,000 (Depreciation Expense, year 3) Depreciation Expense = Beginning of Year Book Value × Double Straight-line Rate Depreciation Expense = ($80,000 − $70,000) × (2 × 25%) = $5,000, but this would reduce the book value to less than salvage. Therefore, depreciation expense in year 4 is limited to ***8$3,400.**** (Book value at the beginning of the year, $10,000, minus the $6,600 salvage.)
Wickland Company installs a manufacturing machine in its production facility at the beginning of the year at a cost of $114,000. The machine's useful life is estimated to be 5 years, or 210,000 units of product, with a $6,000 salvage value. During its second year, the machine produces 33,600 units of product. Determine the machines' second year depreciation under the units-of-production method. (Do not round intermediate calculations.)
Depreciation Expense = [(Cost − Salvage Value)/Estimated Useful Life (in units)] × Production of Units Depreciation Expense = [($114,000 − $6,000)/210,000] × 33,600 = $17,280
A company purchased a weaving machine for $198,250. The machine has a useful life of 8 years and a residual value of $10,500. It is estimated that the machine could produce 751,000 bolts of woven fabric over its useful life. In the first year, 105,500 bolts were produced. In the second year, production increased to 109,500 units. Using the units-of-production method, what is the amount of depreciation expense that should be recorded for the second year?
Depreciation Expense = [(Cost − Salvage Value)/Estimated Useful Life (in units)] × Units Produced Depreciation per unit = ($198,250 − $10,500)/751,000 units = $.25 per unit Depreciation Expense = $.25 × 109,500 = $27,375
A total asset turnover ratio of 3.6 indicates that:
For every $1 in assets, the firm produced $3.6 in net sales during the period.
Ngu owns equipment that cost $94,700 with accumulated depreciation of $64,800. Ngu asks $35,300 for the equipment but sells the equipment for $33,200. Compute the amount of gain or loss on the sale.
Gain/Loss on Sale = Cash Received − Book Value Gain/Loss on Sale = $33,200 − ($94,700 − $64,800); Gain of $3,300
An asset's book value is $25,200 on January 1, Year 6. The asset is being depreciated $350 per month using the straight-line method. Assuming the asset is sold on July 1, Year 7 for $17,900, the company should record:
If the asset's book value is $25,200 on January 1, Year 6 and is being depreciated $350 per month, $6,300 (18 × $350) of additional depreciation expense would be recognized by July 1, Year 7. Thus, the asset's book value on that date would be $18,900. If the asset is sold for $17,900, a loss on sale of $1,000 should be recognized. A loss on sale of $1,000.
Riverboat Adventures pays $380,000 plus $14,000 in closing costs to buy out a competitor. The real estate consists of land appraised at $54,600, a building appraised at $155,400, and paddleboats appraised at $210,000. Compute the cost that should be allocated to the building.
Percent Allocated to Building = $155,400/($155,400 + $54,600 + $210,000) = 0.37 Cost Allocated to Building = ($380,000 + $14,000) × 0.37 = $145,780
Beckman Enterprises purchased a depreciable asset on October 1, Year 1 at a cost of $156,000. The asset is expected to have a salvage value of $16,400 at the end of its five-year useful life. If the asset is depreciated on the double-declining-balance method, the asset's book value on December 31, Year 2 will be:
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An asset's book value is $19,100 on December 31, Year 5. The asset has been depreciated at an annual rate of $4,100 on the straight-line method. Assuming the asset is sold on December 31, Year 5 for $16,100, the company should record:
Selling price $16,100 − $19,100 Book value = $3,000 Loss. A loss on sale of $3,000.
Flask Company reports net sales of $3,360 million; cost of goods sold of $2,860 million; net income of $570 million; and average total assets of $2,660 million. Compute its total asset turnover.
Total Asset Turnover = Net Sales/Average Total AssetsTotal Asset Turnover = $3,360/$2,660 = 1.26
Spears Co. had net sales of $46,404 million. Its average total assets for the period were $15,602 million. Spears' total asset turnover equals:
Total Asset Turnover = Net Sales/Average Total AssetsTotal Asset Turnover = $46,404/$15,602 = 2.97
A company had average total assets of $955,000. Its gross sales were $1,108,000 and its net sales were $940,000. The company's total asset turnover equals:
Total Asset Turnover = Net Sales/Average Total AssetsTotal Asset Turnover = $940,000/$955,000 = 0.98
Merchant Company purchased property for a building site. The costs associated with the property were: Purchase price$179,000 Real estate commissions 15,400 Legal fees 1,200 Expenses of clearing the land 2,400 Expenses to remove old building 1,400 What portion of these costs should be allocated to the cost of the land and what portion should be allocated to the cost of the new building?
Total cost = $179,000 + $15,400 + $1,200 + $2,400 + $1,400 = $199,400The entire amount of the cost should be allocated to the land, since the new building is not yet constructed. $199,400 to Land; $0 to Building.
Peavey Enterprises purchased a depreciable asset for $31,500 on April 1, Year 1. The asset will be depreciated using the straight-line method over its four-year useful life. Assuming the asset's salvage value is $3,900, what will be the amount of accumulated depreciation on this asset on December 31, Year 3?
Year 1[($31,500 − $3,900)/4] × 9/12 =$5,175 Year 2($31,500 − 3,900)/4 =$6,900 Year 3 $6,900 Accumulated $18,975
The following information is available on a depreciable asset owned by Mutual Savings Bank: Purchase dateJuly 1, Year 1 Purchase price$87,100 Salvage value$11,900 Useful life8 years Depreciation method: straight-line The asset's book value is $68,300 on July 1, Year 3. On that date, management determines that the asset's salvage value should be $6,900 rather than the original estimate of $11,900. Based on this information, the amount of depreciation expense the company should recognize during the last six months of Year 3 would be:
[(Year 3 book value − revised salvage value)/useful life] × fraction of year = second half of Year 3 depreciation [($68,300 − $6,900)/6)] × 6/12 = $5,116.67.
