Acct 211 Ch 8

land includes

payments for surveying, clearing, grading, and draining, government assessments,

ordinary repairs

Repairs to keep a plant asset in normal, good operating condition; treated as a revenue expenditure and immediately expensed. Examples are normal costs of cleaning, lubricating, adjusting, and replacing small parts of a machine. Ordinary repairs are treated as revenue expenditures.

4 main issues in accounting for plant assets

computing the costs of plant assets, allocating the costs of most plant assets, account for subsequent expenditures, record disposal

salvage value is the

part of the acquisition cost of an asset that is expected to be recovered when the asset is disposed of at the end of its usefulness to its owner

Plant assets are also caclled

plant and equipment; property, plant and equipment; or fixed assets

Patent

An exclusive right granted to its owner to manufacture and sell an item or to use a process.

natural resources

Assets physically consumed when used; examples are timber, mineral deposits, and oil and gas fields; also called wasting assets.

are additional costs of plant assets that do not materially increase the asset's life or productive capabilities.

Revenue expenditures

That amount of depreciation is computed as follows:

annual depreciation of $1,800 x portion of year of 3/12 = $450.

Depreciation methods

are used to allocate a plant asset's cost over the accounting periods in its useful life.

plant assets are

tangible assets used in a company's operations that have a useful life of more than one accounting period

useful life

length of time it is productively used in company's operations.

A patent is an exclusive right granted to its owner to manufacture and sell a patented item or to use a process for __ .

20 years.

asset book value

asset's acquisition costs less its accumulated depreciation

Total asset turnover =

net sales of $150,000 / average total assets of $60,000 = 2.5

Goodwill is __.

not recorded unless a company or business segment is purchased.

straight-line depreciation rate

which is 100 percent divided by the number of periods in the asset's useful life.

depletion

Process of allocating the cost of natural resources to periods when they are consumed and sold.

Units of production method

Step 1: Depreciation per unit = cost - salvage value / total units of production Step 2: Depreciation Expense = Depreciation per unit x units produced in period

When we use the straight-line method, depreciation expense is the same each period.

The accumulated depreciation is the sum of current and prior periods' depreciation expense. And, the book value declines each period until it equals salvage value at the end of the plant asset's useful life.

single transaction for a lump-sum price

This transaction is called a lump-sum purchase, or group, bulk, or basket purchase.

Cost

incudes all normal and reasonable expenditures necessary to get the asset in place and ready for its intended use.

Cost of factory machine includes

invoice cost less any cash discount for early payment + any necessary freight, unpacking, assembling, installing and testing costs

amortization

Process of allocating the cost of an intangible asset to expense over its estimated useful life.

are recorded as expenses and deducted from revenues in the current period's income statement.

Revenue expenditures

factors that determine depreciation

cost, salvage value, useful life

Because betterments and extraordinary repairs benefit future periods,

these costs are debited to the related plant asset account.

If our estimate of an asset's useful life or salvage value changes, what should we do?

to use the new estimate to compute depreciation for current and future periods. This means that we revise the depreciation expense computation by spreading the cost yet to be depreciated over the revised, remaining useful life. This approach is used for all depreciation methods.

Zimmerman Auto sells new and used cars. Among its assets are the following: (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, and (4) a car that is used to provide rides to customers who prefer to wait at home while their cars are serviced. The assets that are classified as plant assets on the company's balance sheet include

1 & 4

On January 1, 2013, 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 2013, is approximately

Annual depreciation = (Cost of $33,000 - Salvage value of $3,000) ÷ Useful life of 3 years = $10,000

re debited to asset accounts and reported on the balance sheet.

Capital expenditures

On January 1, 2015, 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 in during its life. The machine actually produced 16,000 units during 2015, 23,000 units during 2016, and 21,000 units during 2017. The machinery has a salvage value of $3,000. Using the units-of-production method, the book value of the machinery at December 31, 2016 is approximately

Depreciation per unit = (Cost of $33,000 - Salvage value of $3,000) ÷ Total number of units expected to be produced of 60,000 = $0.50 per unit Depreciation for 2015 = Units produced in the period of 16,000 x Depreciation per unit of $0.50 = $8,000 Depreciation for 2016 = Units produced in the period of 23,000 x Depreciation per unit of $0.50 = $11,500 Book value at December 31, 2016 = Cost of $33,000 - Accumulated depreciation of $19,500 (or $8,000 for 2015 + $11,500 for 2016) = $13,500

revenue expenditures

Expenditures reported on the current income statement as an expense because they do not provide benefits in future periods. Examples of revenue expenditures are cleaning, repainting, adjustments, and lubricants.

betterments

Expenditures to make a plant asset more efficient or productive; also called improvements. A betterment often involves adding a component to an asset or replacing one of its old components with a better one; it might or might not increase the asset's useful life.

units-of-production depreciation

Method that charges a varying amount to depreciation expense for each period of an asset's useful life depending on its usage.

declining-balance method

Method that determines depreciation charge for the period by multiplying a depreciation rate (often twice the straight-line rate) by the asset's beginning-period book value.

Depreciation computations for tax return purposes are performed using the _____.

Modified Accelerated Cost Recovery System

On December 29, 2013, 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 $1,500 cash from the purchaser of the delivery van. Complete the necessary journal entry to record the sale by selecting the account names and dollar amounts from the drop-down menus.

The book value of the equipment at the time of the sale was $2,000 (or cost of $20,000 − updated accumulated depreciation of $18,000). Because Patel received $1,500 cash from the purchaser of the delivery van, which is less than the equipment's book value ($2,000) at the time of the sale, there is a loss on the disposal. The entry to record this sale at less than book value includes a debit to Cash for $1,500, a debit to Accumulated Depreciation — Delivery Van for $18,000, a debit to Loss on Disposal of Delivery Van for $500, and a credit to Delivery Van for $20,000.

On January 2, 2013, Dixie, Inc., pays a salvage company $1,000 to haul away a machine costing $28,000 with accumulated depreciation of $28,000. Complete the necessary journal entry by selecting the account names and dollar amounts from the drop-down menus.

The entry to record the disposal includes a debit to Accumulated Depreciation — Machinery for $28,000, a debit to Loss on Disposal of Machinery for $1,000, a credit to Cash for $1,000, and a credit to Machinery for $28,000. Although the book value of the machine is zero (or cost of $28,000 − accumulated depreciation of $28,000), the cash payment to haul away the equipment caused the loss.

the primary purpose of depreciation is to

allocate the cost of a plant asset over its useful life in conformity with the matching (or expense recognition) principle

units-of-production method is used

depreciation expense depends on unit output, accumulated depreciation is the sum of current and prior periods' depreciation expense, and book value declines each period until it equals salvage value at the end of the asset's useful life.

amortization

process of allocating the cost of an intangible asset to expense over its estimated useful life

The double-declining-balance and straight-line depreciation methods _____.

produce the same amount of total depreciation over an asset's useful life

Building's cost includes

purchase price, brokerage fees, taxes, titles fee and attorney fees

Cost of machinery and equipment consist of

purchase price, taxes, transportation charges, insurance while in transit, and the installing, assembling and testing

The acquisition cost of a plant asset does not include_

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

plant assets

tangible assets used in a company's operations that have a useful life of more than one accounting period.

Background information: On January 1, 2013, 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 double-declining-balance method, depreciation for 2013 is approximately _____.

2013 Depreciation = Straight-line rate = 100%÷ useful life of 3 years = 1/3 Double-declining rate = Straight-line rate of 1/3 x 2 = 2/3 2013 Depreciation = Starting book value of $33,000 (or cost of $33,000 - Accumulated depreciation of $0) x rate of 2/3 = $22,000

capital expenditures

Additional costs of plant assets that provide material benefits extending beyond the current period; also called balance sheet expenditures. Examples are roofing replacement, plant expansion, and major overhauls of machinery and equipment.

Roselle, Inc., prepares financial statements annually as of December 31. On January 31, 2013, Roselle discards a piece of equipment. The equipment, which cost $12,000, had accumulated depreciation of $10,800 as of December 31, 2012. This equipment was depreciated using the straight-line method over 10 years with zero salvage. Complete the necessary journal entry to bring the accumulated depreciation up-to-date by selecting the account names and dollar amounts from the drop-down menus.

Annual depreciation on this equipment = Cost of $12,000 − Salvage value of $0) ÷ useful life of 10 years = $1,200. Because the equipment was discarded on January 31, one month of depreciation needs to be recorded. The entry to bring the accumulated depreciation up-to-date includes a debit to Depreciation Expense — Equipment for $100 (or $1,200 x 1/12) and a credit Accumulated Depreciation — Equipment for $100.

Roselle, Inc., prepares financial statements annually as of December 31. On January 31, 2013, Roselle discards a piece of equipment. The equipment, which cost $12,000, had accumulated depreciation of $10,800 as of December 31, 2012. This equipment was depreciated using the straight-line method over 10 years with zero salvage. Complete the necessary journal entry to record the disposal by selecting the account names and dollar amounts from the drop-down menus. Assume that the entry to bring the accumulated depreciation up-to-date through January 31 has already been recorded.

Before the entry to record the disposal is made, an entry to bring the accumulated depreciation up-to-date is recorded. The amount of accumulated depreciation recorded in that entry is $100 (or Cost of $12,000 — Salvage value of $0) / useful life of 10 years x 1/12 = $100). The updated accumulated depreciation now equals $10,900 (or $10,800 + $100). Because the equipment has a book value of $1,100 (or cost of $12,000 — updated accumulated depreciation of $10,900) when it is discarded, the company must recognize a loss of $1,100 (which, in this case, equals the book value). The entry to record the disposal includes a debit to Accumulated Depreciation — Equipment for $10,900, a debit to Loss on Disposal of Equipment for $1,100, and a credit to Equipment for $12,000.

Last year, Mountain Top, Inc., purchased a coal mine at a cost of $900,000. The salvage value has been estimated at $100,000. The coal mine has an estimated 200,000 tons of available coal. A total of 70,000 tons were mined and sold during the year ending December 31, 2013. Complete the necessary journal entry to record depletion expense for 2013 by selecting the account names and dollar amounts from the drop-down menus.

Depletion per ton = (cost of $900,000 − salvage value of $100,000) ÷ 200,000 tons = $4 per ton. Depletion = depletion per unit of $4 x 70,000 tons extracted and sold = $280,000. The entry to record the depletion includes a debit to Depletion Expense—Coal Deposit for $280,000 and a credit to Accumulated Depletion—Coal Deposit for $280,000.

depreciation

Expense created by allocating the cost of plant and equipment to periods in which they are used; represents the expense of using the asset. the process of allocating the cost of a plant asset to expense in the accounting periods benefiting from its use.

Copyright

Gives its owner the exclusive right to publish and sell musical, literary, or artistic work over a defined period of time.

What if we discard an asset that is not fully depreciated or one whose depreciation is not up-to-date?

Let's assume that we discard a piece of equipment on July 1, 2013. The equipment, which costs $8,000, has accumulated depreciation of $6,000 as of December 31, 2012. This equipment was depreciated using the straight-line method over 8 years with zero salvage value. First, we need to bring depreciation up-to-date through the date of disposal. This entry includes a debit to Depreciation Expense for $500 (or cost of $8,000 / useful life of 8 years x ½ year) and a credit to Accumulated Depreciation—Equipment for $500. At this point, the equipment has accumulated depreciation of $6,500 (or $6,000 + $500). Because the equipment has a book value of $1,500 (or cost of $8,000 minus an updated accumulated depreciation of $6,500) when it is discarded, the company must recognize a loss of $1,500 (which, in this case, equals the book value). The entry to record the disposal includes a debit to Accumulated Depreciation—Equipment for $6,500, a debit to Loss on Disposal of Equipment for $1,500, and a credit to Equipment for $8,000. The loss is reported in the Other Expenses and Losses section of the income statement.

intangible assets

Long-term assets (resources) used to produce or sell products or services; usually lack physical form and have uncertain benefits.

extraordinary repairs

Major repairs that extend the useful life of a plant asset beyond prior expectations; treated as a capital expenditure.

On January 1, 2013, 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. At December 31, 2014, using the double-declining-balance method, the book value of the machine is approximately _____.

Straight-line rate = 100%÷ useful life of 3 years = 1/3 Double-declining rate = Straight-line rate of 1/3 x 2 = 2/3 2013 Depreciation = Starting book value of $33,000 (or cost of $33,000) x rate of 2/3 = $22,000 Book value at 12/31/13 = Cost of $33,000 - Accumulated depreciation of $22,000 = $11,000 2014 Depreciation = Book value at 12/31/15 of $11,000 x rate of 2/3 = $7,333 Book value at 12/31/16 = (Cost of $33,000 - Accumulated depreciation of $29,733 (or $22,000 + $7,333) = $3,667

On December 29, 2013, 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. Complete the necessary journal entry to record the sale by selecting the account names and dollar amounts from the drop-down menus.

The book value of the equipment at the time of the sale was $2,000 (or cost of $20,000 − updated accumulated depreciation of $18,000). Because Patel received $2,000 cash from the purchaser of the delivery van, an amount equal to the equipment's book value at the time of the sale, there is no gain or loss. The entry to record this sale at book value includes a debit to Cash for $2,000, a debit to Accumulated Depreciation — Delivery Van for $18,000, and a credit to Delivery Van for $20,000.

straight line method

cost minus salvage value divided by useful life in periods Method that allocates an equal portion of the depreciable cost of plant asset (cost minus salvage) to each accounting period in its useful life.

Accumulated Depreciation account

is a contra asset account to the Machinery account in the balance sheet and has a normal credit balance

A patent

is an exclusive right granted to its owner to manufacture and sell a patented item or to use a process for up to 20 years. When a patent is purchased, its cost is debited to the Patents account.

Leasehold improvements are amortized by the __ over the life of the lease or the life of the improvements, whichever is shorter.

lessee.

accelerated depreciation method

method that produces larger depreciation charges in the early years of an asset's life and smaller charges in its later years

the useful life of a new plant asset

might be estimated based on the experience of others or on engineering studies and judgement if the company does not have past experience with a similar asset

indefinite life

Asset life that is not limited by legal, regulatory, contractural, competitive, economic, or other factors.

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

$27,000 for the land, $9,000 for the land improvements, and $54,000 for the building

he double-declining-balance (DDB) method is applied in three steps.

1), the asset's straight-line depreciation rate is determined by dividing 100 percent by the number of periods in the asset's useful life. 2), the straight-line rate is doubled. 3) depreciation is computed by multiplying this rate by the asset's beginning-of-period book value.

On January 1, 2013, 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, 2014, is approximately

Book value at December 31, 2016 = Cost of $33,000 = Accumulated depreciation of $20,000 (or $10,000 for 2015 + $10,000 for 2016) = $13,000

On January 1, 2015, 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 in during its life. The machine actually produced 16,000 units during 2015, 23,000 units during 2016, and 21,000 units during 2017. The machinery has a salvage value of $3,000. Using the units-of-production method, the amount of depreciation that should be recorded during 2015 is approximately

Depreciation per unit = (Cost of $33,000 - Salvage value of $3,000) ÷ Total number of units expected to be produced of 60,000 = $0.50 per unit Depreciation for 2013 = Units produced in the period of 16,000 x Depreciation per unit of $0.50 = $8,000

The amount of straight-line depreciation for each of the four remaining years of this machine's useful life is computed as follows.

First, the current book value of $6,400 minus the revised salvage value of $400 equals a revised depreciable cost of $6,000. Dividing this depreciable cost by the revised remaining useful life of 4 years equals a revised annual depreciation amount of $1,500 per year.

Companies often sell plant assets when they restructure or downsize operations.

Let's assume Maharani, Inc., sells equipment that cost $16,000 on March 31, 2013. The equipment had accumulated depreciation of $12,000 at December 31, 2012. Annual depreciation on this equipment is $4,000 computed using straight-line depreciation. First, the entry to record depreciation expense and update accumulated depreciation to March 31 of 2013 includes a debit to Depreciation Expense and a credit to Accumulated Depreciation—Equipment for $1,000 (or annual depreciation of $4,000 x 3/12 of a year). At this point, the book value of the equipment is $3,000 (or cost of $16,000 - (accumulated depreciation of $12,000 + $1,000)). The entry to record the removal of the disposed asset's account balances, any cash (and other assets) received or paid, and any gain or loss on the sale depends on the amount received from the asset's sale. First, let's assume the equipment is sold at book value. If Maharani receives $3,000 cash, an amount equal to the equipment's book value at the time of the sale, there is no gain or loss. The entry to record this sale at book value includes a debit to Cash for $3,000, a debit to Accumulated Depreciation—Equipment for $13,000, and a credit to Equipment for $16,000. Next, let's assume the equipment is sold for more than its book value. If Maharani receives $7,000 cash, an amount that is more than the $3,000 book value at the date of the sale, a gain on disposal in the amount of $4,000 (or cash of $7,000 - book value of $3,000) occurs. The entry to record this sale for more than book value includes a debit to Cash for $7,000, a debit to Accumulated Depreciation—Equipment for $13,000, a credit to Gain on Disposal of Equipment for $4,000, and a credit to Equipment for $16,000. Finally, let's assume the equipment is sold for less than its book value. If Maharani receives $2,500 cash, an amount that is less than the $3,000 book value at the date of the sale, a loss on disposal in the amount of $500 (or cash of $2,500 - book value of $3,000) occurs. The entry to record this sale at less than book value includes a debit to Cash for $2,500, a debit to Loss on Disposal of Equipment for $500, a debit to Accumulated Depreciation—Equipment for $13,000, and a credit to Equipment for $16,000.

Franchises and licenses

Rights that a company or government grants an entity to deliver a product or service under specified conditions.

Background information: On January 1, 2013, 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 double-declining-balance method, depreciation for 2015 is approximately _____.

Straight-line rate = 100%÷ useful life of 3 years = 1/3 Double-declining rate = Straight-line rate of 1/3 x 2 = 2/3 2013 Depreciation = Starting book value of $33,000 (or cost of $33,000) x rate of 2/3 = $22,000 Book value at 12/31/13 = Cost of $33,000 - Accumulated depreciation of $22,000 = $11,000 2014 Depreciation = Book value at 12/31/11 of $11,000 x rate of 2/3 = $7,333 Book value at 12/31/14 = (Cost of $33,000 - Accumulated depreciation of $29,733 (or $22,000 + $7,333) = $3,667 2015 Depreciation = Book value at 12/31/14 of $3,667 x rate of 2/3 = $2,445; however, recording this amount of depreciation expense in 2015 would cause the book value to drop below the salvage value, so record only $667 (or 12/31/14 book value of $3,667 - salvage value of $3,000) of depreciation expense.

Goodwill

The amount by which a company's value exceeds the value of its individual assets and liabilities.

On December 29, 2013, 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 $2,500 cash from the purchaser of the delivery van. Complete the necessary journal entry to record the sale by selecting the account names and dollar amounts from the drop-down menus.

The book value of the equipment at the time of the sale was $2,000 (or cost of $20,000 − updated accumulated depreciation of $18,000). Because Patel received $2,500 cash from the purchaser of the delivery van, which is more than the equipment's book value ($2,000) at the time of the sale, there is a gain on the disposal. The entry to record this sale at more than book value includes a debit to Cash for $2,500, a debit to Accumulated Depreciation — Delivery Van for $18,000, a credit to Gain on Disposal of Delivery Van for $500, and a credit to Delivery Van for $20,000.

On August 4, 2013, Armstrong Trucking, Inc., paid $4,500 to replace the engine in one of its trucks. Complete the necessary journal entry by selecting the account names and dollar amounts from the drop-down menus.

The entry includes a debit to Trucks $4500 and a credit to Cash $4500.

On January 5, 2013, 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. Complete the necessary adjusting entry by selecting the account names and dollar amounts from the drop-down menus.

This entry includes a debit to Amortization Expense—Patents for $5,000 (or $100,000 x 1/20) and a credit to Accumulated Amortization—Patents for $5,000.

plant assets are recorded at

cost when acquired

On August 23, 2013, Armstrong Trucking, Inc., paid $5,200 for oil changes for its fleet of trucks. Complete the necessary journal entry by selecting the account names and dollar amounts from the drop-down menus.

he entry includes a debit to Repair Expense $5200, and a credit to Cash $5200.

The general steps in accounting for a disposal of plant assets are:

1. Record depreciation up to the date of disposal—this also updates Accumulated Depreciation. 2. Record the removal of the disposed asset's account balances—including its Accumulated Depreciation. 3. Record any cash (and other assets) received or paid in the disposal. 4. Record any gain or loss—computed by comparing the disposed asset's book value with the market value of any assets received.

land improvements include

total amount paid for the land, including any real estate commissions, title insurance fees, legal fees, and any accrued property taxes paid by the purchaser

Modified Accelerated Cost Recovery System (MACRS),

which enables straight-line depreciation for some assets but requires accelerated depreciation for most kinds of assets. MACRS is not acceptable for financial reporting because it often allocates costs over an arbitrary period that is less than the asset's useful life and it fails to estimate salvage value. Details of MACRS are covered in tax accounting courses.

How to record straight line depreciation for machinery in the general journal

depreciation expense debit, accumulated depreciation - machinery credit

three factors that determine depreciation

(1) cost, (2) salvage value, and (3) useful life.

are additional costs of plant assets that provide benefits extending beyond the current period and increase or improve the type or amount of service an asset provides.

Capital expenditures

limited life

Length of time an asset will be productively used in the operations of a business; also called useful life or service life

Examples of plant assets

equipment being used in the office, building being used for operations

On January 1, 2015, 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

$550,000

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 _____.

Annual Depreciation = (Cost of $12,000 - Salvage value of $2,000) ÷ Useful life of 5 years = $2,000 Depreciation through year 3 = Annual depreciation of $2,000 x 3 years = $6,000 Book value at end of year 3 = Cost of $12,000 = Accumulated depreciation of $6,000 = $6,000 New annual depreciation = (Book value of $6,000 - Revised salvage value of $1,200) ÷ Years remaining in useful life of 3 = $1,600

Cost determination

Let's assume that $167,000 cash was paid to acquire land for a retail store. This land had an old service garage that was removed at a net cost of $13,000 (or $15,000 in costs less $2,000 proceeds from salvaged materials). Additional closing costs total $10,000, consisting of brokerage fees ($8,000), legal fees ($1,500), and title costs ($500). The total cost of the land is $190,000.

On January 2, 2015, Dixie, Inc., pays a salvage company $1,000 to haul away a machine costing $28,000 with accumulated depreciation of $28,000. Complete the necessary journal entry by selecting the account names and dollar amounts from the drop-down menus.

The entry to record the disposal includes a debit to Accumulated Depreciation — Machinery for $28,000, a debit to Loss on Disposal of Machinery for $1,000, a credit to Cash for $1,000, and a credit to Machinery for $28,000. Although the book value of the machine is zero (or cost of $28,000 − accumulated depreciation of $28,000), the cash payment to haul away the equipment caused the loss.

Last year, Mountain Top, Inc., owned a coal mine with a depletion rate of $4 per ton of coal. A total of 100,000 tons were mined, but only 80,000 tons were sold during the year ending December 31, 2014. Complete the necessary journal entry by selecting the account names and dollar amounts from the drop-down menus.

The remaining 20,000 tons remain unsold (or 100,000 tons mined − 80,000 tons sold). The entry to record the depletion and the remaining Coal Inventory includes a debit to Depletion Expense — Coal Deposit for $320,000 (or 80,000 tons x $4 depletion per ton), a debit to Coal Inventory for $80,000 (or 20,000 tons x $4 depletion per ton), and a credit to Accumulated Depletion — Coal Deposit for $400,000 (or 100,000 tons x $4 depletion per ton).

On October 1, 2013, 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, 2013, will be _____.

Using the straight-line method, annual depreciation expense = (Cost of $42,000 - Salvage value of $3,000) / Useful life of 3 years = $13,000 per year Depreciation expense for 2013 = Annual depreciation expense of $13,000 per year x Portion of year of 3/12 =$3,250

A copyright gives its owner the exclusive right to publish and sell a musical, literary, or artistic work __.

during the life of the creator plus 70 years.

salvage value

estimate of the asset's value at the end of its benefit period.

Roselle, Inc., prepares financial statements annually as of December 31. On January 31, 2015, Roselle discards a piece of equipment. The equipment, which cost $12,000, had accumulated depreciation of $10,800 as of December 31, 2014. This equipment was depreciated using the straight-line method over 10 years with zero salvage. Complete the necessary journal entry to bring the accumulated depreciation up-to-date by selecting the account names and dollar amounts from the drop-down menus.

Annual depreciation on this equipment = (Cost of $12,000 − Salvage value of $0) ÷ useful life of 10 years = $1,200. Because the equipment was discarded on January 31, one month of depreciation needs to be recorded. The entry to bring the accumulated depreciation up-to-date includes a debit to Depreciation Expense — Equipment for $100 (or $1,200 x 1/12) and a credit Accumulated Depreciation — Equipment for $100.

On December 29, 2013, Patel Products, Inc., sells a delivery van that cost $20,000. The equipment had accumulated depreciation of $16,000 at December 31, 2012. Annual depreciation on this equipment is $2,000 computed using straight-line depreciation. Complete the necessary journal entry to bring the accumulated depreciation up-to-date by selecting the account names and dollar amounts from the drop-down menus.

Annual depreciation on this equipment is $2,000. Because the equipment was discarded on December 29, 2013, a full year of depreciation needs to be recorded. The entry to bring the accumulated depreciation up-to-date includes a debit to Depreciation Expense for $2,000 and a credit Accumulated Depreciation — Delivery Van for $2,000

Roselle, Inc., prepares financial statements annually as of December 31. On January 31, 2015, Roselle discards a piece of equipment. The equipment, which cost $12,000, had accumulated depreciation of $10,800 as of December 31, 2014. This equipment was depreciated using the straight-line method over 10 years with zero salvage. Complete the necessary journal entry to record the disposal by selecting the account names and dollar amounts from the drop-down menus. Assume that the entry to bring the accumulated depreciation up-to-date through January 31 has already been recorded.

Before the entry to record the disposal is made, an entry to bring the accumulated depreciation up-to-date is recorded. The amount of accumulated depreciation recorded in that entry is $100 (or Cost of $12,000 — Salvage value of $0) / useful life of 10 years x 1/12 = $100). The updated accumulated depreciation now equals $10,900 (or $10,800 + $100). Because the equipment has a book value of $1,100 (or cost of $12,000 — updated accumulated depreciation of $10,900) when it is discarded, the company must recognize a loss of $1,100 (which, in this case, equals the book value). The entry to record the disposal includes a debit to Accumulated Depreciation — Equipment for $10,900, a debit to Loss on Disposal of Equipment for $1,100, and a credit to Equipment for $12,000.

Let's assume that $90,000 cash was paid to acquire land with improvements and a building. We obtained three appraisals: The land was appraised at $30,000, the land improvements at $10,000, and the building at $60,000. We allocate the $90,000 cost on the basis of these appraised values as follows.

First, add the appraised values. Then, divide each appraised value by the total appraised value to determine each asset's percent of total. The percentages should add to 100 percent. Finally, for each asset, multiply the percent of total by the total cost. The apportioned costs should add up to the lump-sum price.