Chapter 8

On December 29, 2020, Patel Products, Inc., sells a delivery van that cost $20,000. The equipment had accumulated depreciation of $16,000 at December 31, 2019. Annual depreciation on this equipment is $2,000 computed using straight-line depreciation. Complete the journal entry bestie

dr deprec exp 2000 cr accum deprec 2000

goodwill

amount by which company's val exceeds val of its individual assets+liabilities

An asset's book value is $18,000 on December 31, Year 5. The asset has been depreciated at an annual rate of $3,000 on the straight-line method. Assuming the asset is sold on December 31, Year 5 for $15,000, the company should record:

A loss on sale of $3,000.

acquisition of plant asset does NOT include: incidental costs, such as title fees, sales commissions, legal fees, and so on. repair costs resulting from damage to the plant asset while it was being unpacked. Correct all normal and reasonable expenditures necessary to get the asset in place and ready for its intended use. costs incurred to modify or customize the new plant asset.

repair costs resulting from damage to the plant asset while it was being unpacked.

plant asset

tangible asset, use in operations, useful lives longer than one period. Plant assets are recorded at cost when purchased.

units of production method

(cost-salvage value)/total units of production

straight-line depreciation method

cost - salvage value / useful life in periods (years)

Which is a plant asset(s)? (1) the showroom building, a separate building used to service customer cars, and various parking lots (2) a nearby acre of land not currently used by the auto dealership (3) new and used cars and trucks for sale to customers (4) a car that is used to provide rides to customers who prefer to wait at home while their cars are serviced

1 and 4 (showroom building and car for rides) because it is used in operations? 2 is not currently used 3 is for sale, not for operations

On January 1, 2019, Coopers Industries bought a parcel of land for use in its operations by paying the seller $100,000 in cash and signing a 5-year, 12 percent note payable in the amount of $400,000. In connection with the purchase of the land, Coopers incurred legal fees of $19,000, a real estate agent sales commission of $25,000, surveying fees of $1,000, and an appraisal fee of $5,000. The acquisition cost of the land is

Cash paid + notes payable + legal fees + sales commission + surveying fees + appraisal fee 100,000+400,000+19000+25000+1000+5000= 550,000

On January 5, Barnaby, Inc., purchased a patent costing $100,000 with a useful life of 20 years. The company records its adjusting entries at the end of each year on December 31. journal entry go go

amortization exp: cost/remaining legal life 100,000/20=5,000 dr amortization expense: patents 5000 cr accum amortization: patents 5000

A company purchased a truck for $35,000 on January 1, 2019. The truck is estimated to have a useful life of four years and a salvage value of $1,000. Assuming that the company uses straight-line depreciation, what is depreciation expense for the year ended December 31, 2020?

cost - salvage value / useful life in periods (35,000-1000)/4 = 8500 --> this is the depreciation expense!! it'll be the same every year *pay attention if the problem is asking for deprec exp vs. accum depr... if accum depr, then pay attention to WHEN the asset was purchased, and what year of depr is being asked

amoritization expense

cost/remaining legal life

A building is acquired on January 1, at a cost of $890,000 with an estimated useful life of 8 years and salvage value of $80,100. Compute depreciation expense for the first three years using the double-declining-balance method.

double-declining-balance method: 200%/useful life in years (200% is double) 200%/8 yrs = 0.25 or 25% (deprec rate) beg book value: 890,000 depr exp for 2019: 890,000*0.25= 222,500 2019 end book val: beg book val - depr 890,000-222,500=667,500 (continue this process for next two years)

Kegler Bowling buys scorekeeping equipment with an invoice cost of $190,000. The electrical work required for the installation costs $19,200. Additional costs are $3,840 for delivery and $13,635 for sales tax. During the installation, the equipment was damaged and the cost of repair was $1,840. What is total recorded cost?

invoice cost, electrical work for installation, delivery costs, and sales tax INCLUDED repair costs excluded

A company sold equipment that originally cost $100,000 for $60,000 cash. The accumulated depreciation on the equipment was $40,000. The company should recognize a:

$0 gain or loss.

Worthington, Inc., paid $90,000 to acquire land, land improvements, and a building. The company obtained two appraisals: The land was appraised at $30,000, the land improvements were appraised at $10,000, and the building was appraised at $60,000. The allocation of the cost of the purchase result in cost figures of:

step 1: add appraised values step 2: find percent of total step 3: apportioned cost --> Paid amt*percent 1. 30k+10k+60k=100k 2. (30,000/100,000) = 30% or 0.3 (10,000/100,000) = 0.10 (60,000/100,000) = 0.6 3. 90,000*0.3=27,000 (land) 90,000*0.1=9000 (imprvmnts) 90,000*0.6=54,000 (building)

A company purchased a delivery van for $28,000 with a salvage value of $3,000 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?

$1,667 (28000-3000)/5 = 5000 sept-dec = 4 months 5000*(4/12 months)= 1667

A company used straight-line depreciation for equipment that cost $12,000, had a salvage value of $2,000, and a 5-year useful life. At the beginning of year 4 of its useful life, the estimate of the salvage value was reduced to $1,200 and its total useful life was increased to 6 years. The amount of depreciation that will be recorded during each of the remaining years of its useful life is:

(12,000-2,000)/5= 2000 cost-past years of depr exp = 12,000-(2000*3 years) = 6000 (book val-revised salvage val)/revised remaing useful life (6000-1200)/6 = 800 how many remaining years of useful life: 2 so 800*2=1600

On January 1, 2019, Truesdale, Inc., purchased a piece of machinery for use in operations. The total acquisition cost was $33,000. The machine has an estimated useful life of 3 years and a salvage value of $3,000. Using the straight-line method, the book value of the machinery at December 31, 2020, is approximately

(33,000-3000)/3 years = 10,000 amount of depreciation 33,000-10,000=23,000 --> first year 2019 23,000-10,000=13,000 --> second year 2020

On October 1, 2019, Illini Company purchased a truck for $42,000. The truck is expected to have a salvage value of $3,000 at the end of its 3-year useful life. If the company uses the straight-line method, the depreciation expense recorded during the year ending December 31, 2019, will be:

(42,000-3000)/3 years = 13,000 partial year depreciation: annual deprec * portion of year 13,000*(3/12) months = 3250

On January 1, the Matthews Band pays $69,000 for sound equipment. The band estimates it will use this equipment for five years and perform 200 concerts. It estimates that after five years it can sell the equipment for $2,000. During the first year, the band performs 55 concerts. Compute the first-year depreciation using the units-of-production method.

(cost -salv val)/total units of production (69000-2000)/200=335 --> depreciation per concert concerts in first yr: 55 depreciation 1st year: 18,425

Peavey Enterprises purchased a depreciable asset for $28,500 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 $3,300, what will be the amount of accumulated depreciation on this asset on December 31, Year 3?

(cost-salvage val)/useful life in yrs depr exp: (28,500-3,300)/4 = 6,300 april-dec = 9 months (include april) !!!! 6,300*(9/12)= 4,725 depr exp for year1 ONLY years 2, 3, etc. depr exp is 6,300 year 3 accum deprec: 4,725+6,300+6,300= 17,325

On January 1, 2018, Truesdale, Inc., purchased a piece of machinery for use in operations. The total acquisition cost was $33,000. The machine was expected to produce a total of 60,000 units during its life. The machine actually produced 16,000 units during 2018, 23,000 units during 2019, and 21,000 units during 2020. The machine has a salvage value of $3,000. Using the units-of-production method, the amount of depreciation that should be recorded during 2018, is approximately:

(cost-salvage value)/total units of production (33,000-3000)/60,000=0.5 depreciation exp per unit * units produced 0.5*16,000=8000

A company paid $326,000 for property that included land, land improvements, and a building. The land was appraised at $175,000, the land improvements were appraised at $70,000, and the building was appraised at $105,000. What is the allocation of costs to the three assets?

3 assets: land, land improvements, building APPRAISAL VALS: land: 175,000 improv: 70,000 bldng: 105,000 total: 350,000 PERCENT OF TOTAL: land: 175,000/350,000 = 0.5 or 50% improv: 70,000/350,000=20% bldng: 105k/350k=30% ALLOCATED COST: land: 0.5*326,000= 163,000 improv: 0.2*326,000= 65,200 bldng: 0.3*326,000=97,800 (these are the answers) (total of allocated costs should equal 326,000)

On January 1, Truesdale, Inc., purchased a piece of machinery for use in operations. The total acquisition cost was $33,000. The machine has an estimated useful life of 3 years and a salvage value of $3,000. Using the straight-line method, the amount of depreciation that should be recorded during year 1, is approximately

cost - salvage value / useful life in periods (33,000-3000)/3 years = 10,000 amount of depreciation

copyright

gives owner exclusive right to publish sell musical, literary, or artistic work over a period of time

A company purchased machinery for $10,800,000 on January 1, 2019. The machinery has a useful life of 10 years and an estimated salvage value of $800,000. What is depreciation expense for the year ended December 31, 2020, assuming that double-declining-balance method is used.

double-declining-balance method: 200%/useful life in years (200% is double) 2/10 years = 20% 2019 beg book value: 10,800,000 depr exp for 2019: 10,800,000*0.2= 2,160,000 2019 end book val: beg book val - depr 10,800,000-2,160,000=8,640,000 2020 beg book val: 8,640,000 depr exp for 2020: 8,640,000*0.2= 1,728,000 2020 end book val: 8,640,000-1,728,000=6,912,000 problem is asking for depr exp for 2020, which is 1,728,000.

On January 2, Dixie, Inc., pays a salvage company $1,000 to haul away a machine costing $28,000 with accumulated depreciation of $28,000. complete the journal entry

dr accum depre 28,000 dr loss on disposal of machinery 1000 cr cash 1000 cr machinery 28,000

On December 29, 2019, Patel Products, Inc., sells a delivery van that cost $20,000. After recording the entry to bring the accumulated depreciation up-to-date, the delivery van had accumulated depreciation of $18,000. Patel received $2,000 cash from the purchaser of the delivery van.

dr accum deprec 18,000 dr cash 2000 cr delivery van 20,000

Milano Gallery purchases the copyright on a painting for $480,000 on January 1. The copyright is good for 10 more years. The company plans to sell prints for 19 years. Record the year-end adjusting entry for the amortization expense of the copyright.

dr amortization exp 48,000 cr accum amortization 48,000 amortization exp = cost/remaining legal life 480,000/10=48,000

Milano Gallery purchases the copyright on a painting for $480,000 on January 1. The copyright is good for 10 more years. The company plans to sell prints for 19 years. Record the purchase of the copyright on a painting for $480,000 cash.

dr copyright 480,000 cr cash 480,000

On August 4, Armstrong Trucking, Inc., paid $4,500 to replace the engine in one of its trucks. Complete the necessary journal entry

dr trucks 4500 cr cash 4500

patent

exclusive right granted to owner to manufacture/sell an item

Wickland Company installs a manufacturing machine in its production facility at the beginning of the year at a cost of $117,000. The machine's useful life is estimated to be 10 years, or 130,000 units of product, with a $3,000 salvage value. During its second year, the machine produces 10,400 units of product. Determine the machines' second year depreciation under the units-of-production method.

units-of-prod method: (cost-salvage val)/useful life in units of production (117,000-3,000)/130,000 =0.8769 depreciation exp per unit * units produced: 0.8769*10,400=9119.76 round to 9,120