会计学原理 第二版 英文版 wiley出版社 第10章 答案

Solutions Manual

to accompany

Principles of Accounting

2nd edition

by

Jerry Weygandt, Keryn Chalmers, Lorena Mitrione Michelle Fyfe, Susana Yuen, Donald Kieso, Paul Kimmel

Chapter 10

Property, plant and equipment; intangible assets and goodwill; mineral

resources and biological assets

John Wiley & Sons Australia, Ltd

CHAPTER 10

Property, plant and equipment; intangible assets and goodwill; mineral resources and biological assets ASSIGNMENT CLASSIFICATION TABLE

Learning Objectives Questions

Brief

Exercises Exercises

Problems

Set A

1. Describe how the cost

principle applies to PPE.

1, 2, 3, 27 1, 2 1, 2 1

2. Explain the concept of

depreciation and compute

periodic depreciation using

different methods.

4, 5, 7, 8, 22 3, 4, 5, 6, 7 3, 4, 5 2, 3, 4

3. Identify capital expenditures

and explain the entries for

these expenditures.

6, 9, 19, 24

4. Describe the measurement

of PPE subsequent to

acquisition and how to

account for the disposal of

PPE. 10, 11, 23,

28

9, 10 6 5, 6

5. Explain the basic issues

related to accounting for

intangible assets and

goodwill. 14, 15, 16,

17, 18

12 8, 9 7, 8

6. Explain the basic uses

related to accounting for

mineral resources.

12, 13 11 7

7. Explain the basic issues

related to accounting for

agricultural activity and

biological assets.

8 10

8. Indicate how plant PPE

assets, intangible assets

and goodwill, mineral

resources, and agricultural

activity are reported and

analysed.

20, 21 13, 14 11 5, 7, 9

*9. Explain how to account for

the exchange of PPE.

25, 26 15, 16 12, 13

ASSIGNMENT CHARACTERISTICS TABLE

Problem

Number Description Difficulty

Level

Time

Allotted

(min.)

1 Determine acquisition costs of land and building. Simple 20-30

2 Compute depreciation under different methods. Simple 30-40

3 Compute depreciation under different methods. Moderate 30-40

4 Calculate revisions to depreciation expense. Moderate 20-30

5 Journalise a series of equipment transactions related to

purchase, sale, retirement and depreciation.

Moderate 40-50

6 Record disposals. Simple 30-40

7 Prepare entries to record transactions related to

acquisition and amortisation of intangibles; prepare the

intangible assets section.

Moderate 30-40

8 Prepare entries to correct errors made in recording and

amortising intangible assets.

Moderate 30-40 9 Calculate and comment on asset turnover ratio. Moderate 10-20

BLOOM’S TA XONOMY TABLE

Correlation Chart between Bloom’s Taxonomy, Study Objectives and End-of-Chapter Exercises

and Problems

Learning Objective Knowledge Comprehension Application Analysis Synthesis Evaluation

1. Describe how the cost

principle applies to

PPE. Q10-1

Q10-2

Q10-3

Q10-28

E10-1

P10-1

BE10-1

BE10-2

E10-2

2. Explain the concept of

depreciation and

compute periodic

depreciation using

different methods. Q10-5 Q10-4

Q10-6

Q10-7

Q10-8

Q10-22

BE10-3

BE10-4

BE10-5

BE10-6

E10-3

E10-4

P10-2

P10-4

BE10-7

E10-5

P10-3

3. Identify capital

expenditures, and

explain the entries for

these expenditures. Q10-9 Q10-19 Q10-24

4. Describe the

measurement of PPE

subsequent to

acquisition and how to

account for the disposal

of PPE. Q10-10 Q10-11

Q10-28

BE10-9

BE10-10

E10-6

P10-5

P10-6

5. Explain the basic

issues related to

accounting for

intangible assets. Q10-18 Q10-14

Q10-15

Q10-16

Q10-17 BE10-12

E10-8

E10-9

P10-7

P10-8

6. Explain basic issues

related to accounting

for mineral resources. Q10-12 Q10-13 BE10-11

E10-7

7. Explain the basic

issues related to

accounting for

agricultural activity and

biological assets. BE10-8 E10-10

8. Indicate how PPE

assets, intangible

assets, goodwill

mineral resources and

agricultural activity are

reported and analysed. Q10-23 BE10-13

BE10-14

E10-11

Q10-20

Q10-21

P10-5

P10-7

P10-9

*9. Explain how to account for the exchange of

PPE. Q10-25 Q10-26 BE10-15

BE10-16

E10-11

E10-13

Broadening Your

Perspective

Communication

Exploring the

Web

Research in

Action Group Decision Case Financial

Reporting

Comparative

Analysis

Interpreting

Financial

Statements

Group Decision

Ethics Case

Comparative

Analysis

ANSWERS TO QUESTIONS

1.For PPE assets, the cost principle means that cost consists of all expenditures necessary to

acquire the asset and make it ready for its intended use.

2.Examples of land improvements include driveways, parking lots, fences, and underground

sprinklers.

3.(a) When only the land is to be used, all demolition and removal costs of the building less

any proceeds from residual materials are necessary expenditures to make the land

ready for its intended use.

(b) When both the land and building are to be used, necessary costs of the building include

remodeling expenditures and the cost of replacing or repairing the roofs, floors, wiring,

and plumbing.

4.You should explain to the CEO that depreciation is a process of allocating the cost of a PPE

asset to expense over its service (useful) life in a rational and systematic manner.

Recognition of depreciation is not intended to result in the accumulation of cash for replacement of the asset.

5.(a) Residual value, also called salvage value, is the expected value of the asset at the end

of its useful life.

(b) Residual value is used in determining depreciation in each of the methods except the

reducing-balance method.

6.Assets are depreciated because their usefulness and revenue-producing ability will decline

over their useful life. Although expenditures incurred on repair and maintenance will help to maintain the operating efficiency and productive life of the assets, the assets’ revenue-producing ability will still decline over the years due to wear and tear and obsolescence. In other words, assets that have been repaired and maintained will eventually wear out.

Therefore, expenditure on repair and maintenance does not negate the need for depreciation, but merely maintains the assets’ condition to the st andard during their useful life.

7.The effects of the three methods on annual depreciation expense are: Straight-line —

constant amount; units of production —varying amount; reducing-balance —decreasing amounts.

8. A revision of depreciation is made in current and future years but not retrospectively. The

rationale is that continual restatement of prior periods would adversely affect confidence in the financial statements.

9.Repair expenses are ordinary repairs made to maintain the operating efficiency and

expected productive life of the asset. Capital expenditures are additions and improvements made to increase efficiency, productivity or expected useful life of the asset. Repair expenses are recognised as expenses when incurred; capital expenditures are generally debited to the PPE asset affected.

10.In a sale of PPE assets, the carrying amount of the asset is compared to the net proceeds

received from the sale. If the net proceeds of the sale exceed the carrying amount of the PPE asset, a gain on disposal occurs. If the proceeds of the sale are less than the carrying amount of the PPE asset sold, a loss on disposal occurs.

Answers to Questions (continued)

11. The PPE asset and its accumulated depreciation should continue to be reported on the

statement of financial position without further depreciation adjustment until the asset is retired. Reporting the asset and related accumulated depreciation on the statement of financial position informs the reader of the financial statements that the asset is still in use. However, once an asset is fully depreciated, even if it is still being used, no additional depreciation should be taken. In no situation can the accumulated depreciation on the PPE asset exceed its cost.

12. Mineral resources consist of underground deposits of oil, gas and minerals. These long-lived

productive assets have two distinguishing characteristics: they are physically extracted in operations, and they are replaceable only by an act of nature.

13. Amortisation of the capitalised costs is the allocation of the cost of mineral resources to

expense in a rational and sys tematic manner over the resource’s useful life. It is computed by multiplying the amortisation cost per unit by the number of units extracted and sold.

14. The terms depreciation and amortisation are both concerned with writing off the cost of an

asset to expense over the periods benefited. Depreciation refers to allocating the cost of a PPE asset to expense and amortisation to allocating the cost of an intangible asset to expense or the cost of a mineral resource as an expense.

15. The graduate is not correct. The cost of an intangible asset should be amortised over that

asset’s useful life (the period of time when operations are benefited by use of the asset). Occasionally, the useful life or amortisation period will be the same as the legal life, but many other factors in addition to legal life can affect useful life. In addition, some intangibles have indefinite lives and therefore are not amortised at all.

16. The favorable attributes which could result in goodwill include exceptional management,

desirable location, good customer relations, skilled employees, high-quality products, and harmonious relations with labour unions.

17. Goodwill is the value of many favorable attributes that are intertwined in the entity. Goodwill

can be identified only with the entity as a whole and, unlike other assets, cannot be sold separately. Goodwill can only be sold if the entire business is sold. And, if goodwill appears on the statement of financial position, it means the company has purchased another company for more than the fair value of the net assets acquired.

18. Brand names can appear in the statement of financial position only when: (1) the asset

definition and recognition criteria are satisfied; and (2) the brands have been purchased as a result of an acquisition. Internally generated brand names cannot be recognised as assets in the statement of financial position.

19. Research and development costs present several accounting problems. It is sometimes

difficult to assign the costs to specific projects, and there are uncertainties in identifying the extent and timing of future benefits. As a result, the accounting rules require that research costs be recorded as an expense when incurred and development costs, under certain conditions, can be capitalised.

20. Baggin Company’s asset turnover ratio is computed as follows:

assets

total Average sales

Net = million $15.8million $26.3 = 1.66 times

Answers to Questions (continued)

21.Since Wanzo uses the straight-line depreciation method, its depreciation expense will be

lower in the early years of an asset’s useful life as compared to using an accelerated method.

Cheng’s depreciation expense in the early years of an asset’s use ful life will be higher as compared to the straight-line method. Wanzo’s net profit will be higher than Cheng’s in the first few years of the asset’s useful life. And, the reverse will be true late in an asset’s useful life.

22.Yes, the tax rules allow a company to use a different depreciation method on the tax return

than is used in preparing financial statements. Shuey Company uses an accelerated depreciation method for tax purposes to minimise its income taxes and thereby the cash outflow for taxes.

23.According to the AASB 116 Property, Plant and Equipment paragraph 32-33, the fair value of

land and buildings is usually determined from market-based evidence by professionally qualified valuers. However, if there is no market-based evidence for fair value due to the nature of the PPE asset and the rarity of the asset being sold, the company may need to estimate fair value using an income or depreciated replacement cost approach.

24.Expensing these costs will make current period profit lower but future period profit higher

because there will be no additional depreciation expense in future periods. If the costs are ordinary repairs, they should be expensed.

25.When similar assets are exchanged, the gain or loss on disposal is computed as the

difference between the carrying amount and the fair value of the asset given up at the time of exchange. Any gain or loss on exchange is recognised immediately.

26.Unless the assets exchanged are similar in nature and value, gains and losses on exchange

are recognised in the financial statements in the reporting period. A gain (loss) arises if the fair value of the old machine exceeds (is less than) its carrying amount.

27.An item of PPE may be gifted or contributed to an entity. For example, land may be

contributed to a state government by a developer at no or nominal consideration to enable the state government to develop roads. Even though no cash is exchanged, the PPE should still be recognised at its fair value when acquired.

28. The existence of an Asset Revaluation Reserve suggests that Gallery uses a revaluation

model for one or more of its asset classes. Subsequent to acquisition, classes of PPE can be measured using the cost model or the revaluation model. Using a revaluation model, if the fair value of the asset increases the asset account is debited and the credit is to the Asset Revaluation Reserve account.

SOLUTIONS TO BRIEF EXERCISES

BRIEF EXERCISE 10-1

All of the expenditures should be included in the cost of the land. Therefore, the cost of the land is $61 000 or ($50 000 + $3000 + $2500 + $2000 + $3500).

BRIEF EXERCISE 10-2

The cost of the truck is $51 500 (cash price $50 000 + sign writing $1 500). The expenditures for insurance and motor vehicle license should not be added to the cost of the truck.

BRIEF EXERCISE 10-3

Depreciable cost of $34 000 or ($40 000 – $6000). With a four-year useful life, annual depreciation is $8500 or ($34 000 ÷4). Under the straight-line method, depreciation is the same each year. Thus, depreciation is $8500 for both the first and second years.

BRIEF EXERCISE 10-4

It is likely that management requested this accounting treatment to boost reported profit. Land is not depreciated; thus, by reporting land at $80 000 above its estimated value and buildings at $80

000 below their fair value, the company increased yearly profit by $4000 or

??

?

?

?

?

years

20

000

$80

the

reduction in depreciation expense. This practice is not ethical because management is knowingly misstating asset values.

BRIEF EXERCISE 10-5

The reducing balance rate is 50% or (25% × 2) and this rate is applied to the carrying amount at the beginning of the year. The computations are:

Carrying amount ×Rate = Depreciation

Year 1 Year 2

$40 000

($40 000 – $20 000)

50%

50%

$20 000

$10 000

BRIEF EXERCISE 10-6

The depreciation cost per unit is 20 cents per km computed as follows:

Depreciable cost ($30 500 – $500) ÷ 150 000 km = $0.20

Year 1 30 000 km × $0.20 = $6000

Year 2 20 000 km × $0.20 = $4000

Carrying amount, 1/1/10 ................................................................................................. $23 000 Less: Residual value ..................................................................................................... 2 000 Depreciable cost ............................................................................................................ $21 000 Remaining useful life ...................................................................................................... 4 years Revised annual depreciation ($21 000 ÷ 4) .................................................................... $ 5 250 BRIEF EXERCISE 10-8

Carrying amount cannot be higher than recoverable amount. The recoverable amount is the higher of selling price (net of costs) and value in use. Thus the equipment’s recoverable amount is $30 000 ($30 000 > $20 000). Therefore, the equipment has to be written down to its recoverable amount. The $15 000 impairment loss is recognised as an expense in the income statement. BRIEF EXERCISE 10-9

(a) Accumulated Depreciation — Delivery Equipment .............................. 41 000

Delivery Equipment ................................................................... 41 000 (b) Accumulated Depreciation — Delivery Equipment .............................. 37 000

Loss on Disposal ................................................................................ 4 000

Delivery Equipment ................................................................... 41 000 Cost of delivery equipment $41 000

Less accumulated depreciation 37 000

Carrying amount at date of disposal 4 000

Proceeds from sale 0

Loss on disposal $ 4 000

BRIEF EXERCISE 10-10

(a) 30 September 2010

Depreciation Expense — Office Equipment ........................................ 4 500 Accumulated Depreciation — Office Equipment ....................... 4 500 (b) 30 September 2010

Cash ................................................................................................. 20 000

Accumulated Depreciation — Office Equipment ................................. 46 500

Loss on Disposal ................................................................................ 5 500 Office Equipment ...................................................................... 72 000 Cost of office equipment $72 000

Less accumulated depreciation 46 500 *

Carrying amount at date of disposal 25 500

Proceeds from sale 20 000

Loss on disposal $ 5 500

*$42 000 + $4500

(a) Amortisation cost per unit = $7 000 000 ÷ 28 000 000 = $.25 amortisation cost per ton $.25 × 6 000 000 = $1 500 000 Amortisation Expense - Mine .................................................. 1 500 000 Accumulated Amortisation - Mine ................................. 1 500 000

(b) Ore mine ........................................................................... $7 000 000 Less: Accumulated amortisation ....................................... 1 500 000 $5 500 000

BRIEF EXERCISE 10-12

(a) 31 December 2010 Amortisation Expense — Patent ($150 000 ÷ 10) ................................ 15 000 Accumulated Amortisation - Patents .......................................... 15 000

(b) Intangible Assets Patents ...................................................................................... $135 000

The cost and accumulated amortisation would be disclosed in the notes to the accounts.

BRIEF EXERCISE 10-13

LUMAS LTD

Statement of Financial Pisition (partial)

as at 31 December 2010

Property, plant, and equipment Coal mine ................................................................. $ 300 000 Less: Accumulated amortisation .............................. 108 000 $192 000 Buildings .................................................................. 1 100 000 Less: Accumulated depreciation .............................. 650 000 450 000 Total property, plant and equipment ............... $642 000 Intangible assets Goodwill ................................................................... 410 000

BRIEF EXERCISE 10-14

Asset turnover ratio for Rambling Ltd is as follow:

tim es 0.692

415

67 47561335$44=+÷

BRIEF EXERCISE 10-15

Delivery Equipment (new) ............................................................................ 22 000 Accumulated Depreciation — Delivery Equipment ....................................... 30 000

Loss on Disposal.......................................................................................... 12 000 Delivery Equipment (old) ..................................................................... 61 000 Cash ................................................................................................... 3 000 Fair value of old delivery equipment $19 000

Cash 3 000

Cost of delivery equipment $22 000

Fair value of old delivery equipment $19 000

Carrying amount of old delivery equipment ($61 000 – $30 000) 31 000

Loss on disposal $12 000

BRIEF EXERCISE 10-16

Delivery Equipment (new) ............................................................................ 41 000 Accumulated Depreciation — Delivery Equipment ....................................... 30 000 Delivery Equipment (old) ..................................................................... 61 000 Cash ................................................................................................... 3 000 Gain on disposal Delivery Equipment ................................................. 7 000 Fair value of old delivery equipment $38 000

Carrying amount of old delivery equipment

($61 000 – $30 000) 31 000

Gain on disposal $ 7 000

Fair value of old delivery equipment $38 000

Cash 3 000

Cost of new delivery equipment 41 000

SOLUTIONS TO EXERCISES

EXERCISE 10-1

(a) Under the cost principle, the acquisition cost for a PPE asset includes all expenditures

necessary to acquire the asset and make it ready for its intended use. For example, the cost of factory machinery includes the purchase price, freight costs paid by the purchaser, insurance costs during transit, and installation costs.

(b) 1. Land

2. Factory Machinery

3. Land Improvements

4. Delivery Equipment

5. Factory Machinery

6. Prepaid Insurance

7. License Expense

EXERCISE 10-2

(a) Cost of land

Cash paid ............................................................................................... $90 000

Net cost of removing warehouse ($6600 – $1700) .................................. 4 900

Lawyer’s fee ........................................................................................... 1 100

Real estate agent’s fee........................................................................... 5 000 Total .............................................................................................. $101 000 (b) The architect’s fee ($7800) should be debited to the Building a ccount. The cost of the

driveways and parking lot ($14 000) should be debited to Land Improvements.

EXERCISE 10-3

(a) Depreciation cost per unit is $1.40 per km

[($148 000 – $8000) ÷ 100 000].

(b) Computation End of Year

Year

end 30 June

Units of

Production ×

Depreciation

Cost/Unit =

Annual

Depreciation

Expense

Accumulated

Depreciation

Carrying

Amount

2011 2012 2013 2014 26 000

32 000

25 000

17 000

$1.40

1.40

1.40

1.40

$36 400

44 800

35 000

23 800

$ 36 400

81 200

116 200

140 000

$111 600

66 800

31 800

8 000

(a) Straight-line method:

???

? ??5000$12 - 000$96= $16 800 per year. 2010 depreciation = $16 800 × 3/12 = $4200.

(b) Reducing balance method: 2010 depreciation = $96 000 × 40% × 3/12 = $9600. Carrying amount 1 January 2011 = $96 000 – 2011 depreciation = $86 400 × 40% = $34 560.

(c) Units-of-production method:

???

? ?

?000

10000$12 - 000$96= $8.40 per hour.

2010 depreciation = 1700 hours × $8.40 = $14 280.

EXERCISE 10-5

(a) Type of Asset Building

Warehouse

Carrying amount, 1/1/10

Less: Residual value Depreciable cost

Revised useful life (in years) remaining

Revised annual depreciation

$648 000 18 000 $630 000

42

$15 000

$81 000 3 600 $77 400

15

$5 160

(b) Dec. 31 Depreciation Expense — Building ..................................... 15 000 Accumulated Depreciation — Building .....................

15 000

July 1 Accumulated Depreciation — Machinery ...................................... 62 000

2010 Machinery .............................................................................. 62 000 Jan. 1 Depreciation Expense ................................................................... 3 500

2011 Accumulated Depreciation — Computer

($35 000 × 1/5 × 6/12) ........................................................ 3 500

1 Cash ............................................................................................. 1

2 000

Accumulated Depreciation — Computer ....................................... 24 500

($35 000 × 3/5 = $21 000; $21 000 + $3500)

Gain on Disposal [$12 000 – ($35 000 – $24 500)] ................ 1 500

Computer ............................................................................... 35 000 June 30 Depreciation Expense ................................................................... 5 000

2011 Accumulated Depreciation — Truck ....................................... 5 000 [($33 000 – $3000) × 1/6]

30 Loss on Disposal .......................................................................... 8 000

Accumulated Depreciation — Truck .............................................. 25 000

[($33 000 – $3000) × 5/6]

Delivery Truck ........................................................................ 33 000

EXERCISE 10-7

(a) June 30 Amortisation Expense .................................................. 60 000

Accumulated amortisation (200 000 × $.30) ....... 60 000 Cost (a) $480 000

Units estimated (b) 1 600 000 tons

Amortisation cost per unit [(a) ÷ (b)] $0.30

(b) The costs pertaining to the unsold units are reported in current assets as part of inventory

(40 000 × $.30 = $12 000).

EXERCISE 10-8

Dec. 31 Amortisation Expense — Patent ........................................ 8 000

Patents ($60 000 × 1/5 × 8/12) ................................. 8 000 Note: No entry is made to amortise goodwill because goodwill is not required to be amortised.

Cash .................................................................................. 420 000

1/10/10 Goodwill ...................................................................................... 360 000 Cash .................................................................................. 360 000 (Part of the entry to record purchase of another company)

1/1/11 Franchise .................................................................................... 480 000 Cash .................................................................................. 480 000 -

1/3/11 Research and Development Expense* ....................................... 185 000 Cash .................................................................................. 185 000

Amortisation Expense — Patent ($420 000 ÷ 7) ........................................... 60 000 Amortisation Expense — Franchise [($480 000 ÷ 10) × 1/2] ......................... 24 000 Patents .......................................................................................... 60 000 Franchise .......................................................................................... 24 000

Ending balances, 30/06/11: Patent = $360 000 ($420 000 – $60 000). Goodwill = $360 000 Franchise = $456 000 ($480 000 – $24 000). R&D expense = $185 000

* Assumes development expenses are expensed rather than capitalised.

EXERCISE 10-10

(a) Income/expense on increase in fair value less point of sale costs of olive grove:

Value at 30 June 2010 $7 500 000 Value at 30 June 2011 $9 200 000 Income — gain from change in fair value less point of

sale costs of olive grove $1 700 000

Fair value of olives produced $600 000 Expense — Costs associated with harvesting olives $140 000 Income — Gains arising from changes in fair value

less point-of-sales of olives harvested during the

reporting period $460 000

(b) Biological assets grow and therefore their value changes throughout time as a result of both

their growth (as they grow they generally become more valuable) and changes in price.

EXERCISE 10-11

Asset turnover ratio = 000

400$1000

200$4 = 3.0 times

Accumulated Depreciation — Trucks (old).......................................... 22 000

Loss on Disposal ................................................................................ 4 000 Trucks (old)............................................................................... 64 000

Cash ......................................................................................... 17 000 Cost of old trucks $64 000

Less accumulated depreciation 22 000

Carrying amount 42 000

Fair value of old trucks 38 000

Loss on disposal $ 4 000

Fair value of old trucks $38 000

Cash paid 17 000

Cost of new trucks $55 000

(b) Machine (new) .................................................................................... 11 000

Accumulated Depreciation — Machine (old) ....................................... 4 000 Machine (old) ............................................................................ 12 000

Cash ......................................................................................... 2 000

Gain on disposal of machine ..................................................... 1 000 Cost of old machine $12 000

Less accumulated depreciation 4 000

Carrying amount 8 000

Fair value of old machine 9 000

Gain on disposal $ 1 000

Fair value of old machine $ 9 000

Cash paid 2 000

Cost of new machine 11 000

Bombay Ltd:

Equipment (new) ................................................................................ 15 000

Accumulated Depreciation — Equipment (old) ................................... 21 000 Equipment (old) ........................................................................ 28 000

Cash ......................................................................................... 3 000

Gain on disposal ....................................................................... 5 000 Computation of gain:

Carrying amount of old equipment $ 7 000

Fair value of old equipment 12 000

Loss on disposal $ 5 000

Cost of new equipment:

Fair value of old equipment $12 000

Cash paid 3 000

Cost of new equipment 15 000

Banglore Ltd:

Cash ................................................................................................. 3 000

Equipment (new) ............................................................................... 12 000

Loss on Disposal ................................................................................ 2 000

Accumulated Depreciation — Equipment (old) ................................... 5 000 Equipment (old) ........................................................................ 22 000

Computation of loss:

Carrying amount of old equipment $17 000

Fair value of old equipment 15 000

Loss on disposal $ 2 000

Cost of new equipment:

Fair value of old equipment $15 000

Cash received 3 000

Cost of new equipment $12 000

SOLUTIONS TO PROBLEMS

PROBLEM 10-1

Item Land Building Other Accounts

1 2 3 4 5 6 7 8 9 10 $ 2 000

125 000

21 000

( (2 500)

$145 500)

$600 000

25 000

10 000

_0000 000

$635 000

$3000 Property Tax Expense

$15 000 Land Improvements

$4000 Land Improvements

(a)

Year Computation Accumulated Depreciation

31/12

MACHINE 1

2006 2007 2008 2009 $70 000 × 20% = $14 000

$70 000 × 20% = $14 000

$70 000 × 20% = $14 000

$70 000 × 20% = $14 000

$ 14 000

28 000

42 000

56 000

MACHINE 2

2007 2008 2009 $80 000 × 40% = $32 000

$48 000 × 40% = $19 200

$28 800 × 40% = $11 520

$32 000

51 200

62 720

MACHINE 3

2009 1 000 × ($72 000 ÷ 24 000) = $3 000 $ 3 000 (b) Year Depreciation Computation Expense

MACHINE 2

(1)

(2) 2007

2008

$80 000 × 40% × 9/12 = $24 000

$56 000 × 40% = $22 400

$24 000

$22 400

(a) (1) Purchase price ........................................................................................ $38 500

Shipping costs ........................................................................................ 2 375

Insurance during shipping (75)

Installation and testing (50)

Total cost of machinery ................................................................. $41 000

1 January 2010

Machinery .................................................................................. 41 000

Cash ................................................................................ 41 000

(2) Recorded cost ........................................................................................ $41 000

Less: Residual value .............................................................................. 5 000

Depreciable cost ..................................................................................... $36 000

Years of useful life .................................................................................. ÷ 4 Annual depreciation ...................................................................... $ 9 000

31 December 2010

Depreciation Expense ................................................................ 9 000

Accumulated Depreciation ............................................... 9 000 (b) (1) Recorded cost ........................................................................................ $100 000

Less: Residual value .............................................................................. 8 000

Depreciable cost ..................................................................................... 92 000

Years of useful life .................................................................................. ÷ 4 Annual depreciation ...................................................................... $ 23 000

(2)

Year

Carrying

amount at

Beginning of

Year

Reducing

Balance

Rate

Annual

Depreciation

Expense

Accumulated

Depreciation

2010 2011 2012 2013

$100 000

50 000

25 000

12 500

50%*

50%

50%

50%

$50 000

25 000

12 500

4 500**

$50 000

75 000

87 500

92 000

*100% ÷ 4-year useful life = 25% × 2 = 50%.

**[($100 000 – $8000) – $87 500] = $4500.

(3) Depreciation cost per unit = ($100 000 – $8000)/25 000 units = $3.68 per unit.

Annual Depreciation Expense

2010: $3.68 × 6500 = $23 920

2011: 3.68 × 7500 = 27 600

2012: 3.68 × 6000 = 22 080

2013: 3.68 × 5000 = 18 400