Solution manual accounting 25th editon warren chapter 10

CHAPTER 10
FIXED ASSETS AND INTANGIBLE ASSETS
DISCUSSION QUESTIONS
1.

a.
b.

2.

Real estate acquired as speculation should be listed in the balance sheet under the caption
“Investments,” below the Current Assets section.

3.

$1,100,000

4.

Capital expenditures include the cost of acquiring fixed assets and the cost of improving an
asset. These costs are recorded by increasing (debiting) a fixed asset account. Capital
expenditures also include the costs of extraordinary repairs, which are recorded by decreasing
(debiting) the asset’s accumulated depreciation account. Revenue expenditures are recorded as
expenses and are costs that benefit only the current period and are incurred for normal
maintenance and repairs of fixed assets.

5.

Capital expenditure

6.

12 years

7.

a.
b.

No
No

8.

a.

An accelerated depreciation method is most appropriate for situations in which the decline
in productivity or earning power of the asset is proportionately greater in the early years of
use than in later years, and the repairs tend to increase with the age of the asset.

b.

An accelerated depreciation method reduces income tax payable to the IRS in the earlier
periods of an asset’s life. Thus, cash is freed up in the earlier periods to be used for other
business purposes.

c.

MACRS was enacted by the Tax Reform Act of 1986. It is used for depreciation for
fixed assets acquired after 1986.

a.

No, the accumulated depreciation for an asset cannot exceed the cost of the asset. To do so
would create a negative book value, which is meaningless.

b.

The cost and accumulated depreciation should be removed from the accounts when the
asset is no longer useful and is removed from service. Presumably, the asset will then be
sold, traded in, or discarded.

9.

10. a.
b.
c.

Property, plant, and equipment or Fixed assets
Current assets (merchandise inventory)

Over the shorter of its legal life or years of usefulness.
Expense as incurred.
Goodwill should not be amortized, but written down when impaired.

10-1
© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.


CHAPTER 10

Fixed Assets and Intangible Assets

PRACTICE EXERCISES
PE 10–1A
Aug.

7 Delivery Truck
Cash
7 Repairs and Maintenance Expense
Cash

1,675
1,675
40
40

PE 10–1B
Feb.

14 Accumulated Depreciation—Delivery Van
Cash
14 Delivery Van
Cash

PE 10–2A
a.
b.
c.

$415,000 ($440,000 – $25,000)

12.5% = (1/8)
$51,875 ($415,000 × 12.5%), or ($415,000 ÷ 8 years)

PE 10–2B
a.
b.
c.

$1,150,000 ($1,450,000 – $300,000)
10% = (1/10)
$115,000 ($1,150,000 × 10%), or ($1,150,000 ÷ 10 years)

PE 10–3A
a.
b.
c.

$236,000 ($275,000 – $39,000)
$5.90 per hour ($236,000 ÷ 40,000 hours)
$15,694 (2,660 hours × $5.90)

PE 10–3B
a.
b.
c.

$57,000 ($69,000 – $12,000)
$0.19 per mile ($57,000 ÷ 300,000 miles)
$14,630 (77,000 miles × $0.19)

2,300
2,300
450
450


PE 10–4A
a.
b.

12.5% = [(1/16) × 2]
$35,000 ($280,000 × 12.5%)

PE 10–4B
a.
b.

5% = [(1/40) × 2]
$68,750 ($1,375,000 × 5%)

PE 10–5A
a.
b.
c.

$5,500 [($82,000 – $16,000) ÷ 12]
$43,500 [$82,000 – ($5,500 × 7)]
$5,250 [($43,500 – $12,000) ÷ 6]

PE 10–5B

a.
b.
c.

$10,350 [($180,000 – $14,400) ÷ 16]
$76,500 [$180,000 – ($10,350 × 10)]
$8,250 [($76,500 – $10,500) ÷ 8]

PE 10–6A
a.

$28,000 [($465,000 – $45,000) ÷ 15]

b.

$6,000 loss {$235,000 – [$465,000 – ($28,000 × 8)]}

c.

Cash
Accumulated Depreciation—Equipment
Loss on Sale of Equipment
Equipment

235,000
224,000
6,000
465,000

CHAPTER 10

Fixed Assets and Intangible Assets

PE 10–6B
a.

$75,000 = $600,000 × [(1/16) × 2)] = $600,000 × 12.5%

b.

$20,625 gain, computed as follows:
Cost……………………………………………………… $600,000
Less: First-year depreciation……………………
(75,000)
(65,625) [($600,000 – $75,000) × 12.5%]
Second-year depreciation…………………
$459,375
Book value at end of second year………………
Gain on sale ($480,000 – $459,375) = $20,625

c.

Cash
Accumulated Depreciation—Equipment
Equipment
Gain on Sale of Equipment

480,000
140,625

600,000
20,625

PE 10–7A
a.

$0.30 per ton = $127,500,000 ÷ 425,000,000 tons

b.

$12,600,000 = 42,000,000 tons × $0.30 per ton

c.

Dec.

31 Depletion Expense
Accumulated Depletion
Depletion of mineral deposit.

12,600,000
12,600,000

PE 10–7B
a.

$1.04 per ton = $494,000,000 ÷ 475,000,000 tons

b.

$32,760,000 = 31,500,000 tons × $1.04 per ton

c.

Dec.

31 Depletion Expense
Accumulated Depletion
Depletion of mineral deposit.

32,760,000
32,760,000


PE 10–8A
a.

b.

Dec.

Dec.

31 Loss from Impaired Goodwill
Goodwill
Impaired goodwill.

4,000,000
4,000,000

31 Amortization Expense—Patents
Patents
Amortized patent rights
[($900,000 ÷ 15) × 5/12].

25,000
25,000

PE 10–8B
a.

b.

Dec.

Dec.

31 Loss from Impaired Goodwill
Goodwill
Impaired goodwill.

6,000,000
6,000,000

31 Amortization Expense—Patents
Patents
Amortized patent rights
[($1,500,000 ÷ 12) × 9/12].

93,750

93,750

PE 10–9A
a.

Fixed Asset Turnover:
Net sales………………………………
Fixed assets:
Beginning of year………………
End of year………………………
Average fixed assets………………

Fixed asset turnover………………

b.

2014

2013

$5,510,000

$4,880,000

$1,600,000
$2,200,000
$1,900,000

$1,450,000
$1,600,000

$1,525,000

[($1,600,000 + $2,200,000) ÷ 2]

[($1,450,000 + $1,600,000) ÷ 2]

2.9

3.2

($5,510,000 ÷ $1,900,000)

($4,880,000 ÷ $1,525,000)

The decrease in the fixed asset turnover ratio from 3.2 to 2.9 indicates an
unfavorable trend in the efficiency of using fixed assets to generate sales.


PE 10–9B
a.

Fixed Asset Turnover:
Revenue………………………………
Fixed assets:
Beginning of year………………
End of year………………………
Average fixed assets………………

Fixed asset turnover………………

b.

2014

2013

$1,668,000

$1,125,000

$ 670,000
$ 720,000
$ 695,000

$ 580,000
$ 670,000
$ 625,000

[($670,000 + $720,000) ÷ 2]

[($580,000 + $670,000) ÷ 2]

2.4

1.8

($1,668,000 ÷ $695,000)

($1,125,000 ÷ $625,000)

The increase in the fixed asset turnover ratio from 1.8 to 2.4 indicates a favorable
trend in the efficiency of using fixed assets to generate sales.


EXERCISES
Ex. 10–1
a.
b.

New printing press: 1, 2, 3, 5, 6
Used printing press: 7, 8, 9, 11

Ex. 10–2
a.

Yes. All expenditures incurred for the purpose of making the land suitable for
its intended use should be debited to the land account.

b.

No. Land is not depreciated.

Ex. 10–3
Initial cost of land ($100,000 + $700,000)......................................
Plus:
Legal fees........................................................................
Delinquent taxes.............................................................
Demolition of building...................................................................
.................................................................................................35,500
Less salvage of materials.............................................................

Cost of land....................................................................................

Ex. 10–4
Capital expenditures: 3, 4, 5, 6, 7, 9, 10
Revenue expenditures: 1, 2, 8

Ex. 10–5
Capital expenditures: 2, 3, 4, 8, 9, 10
Revenue expenditures: 1, 5, 6, 7

$800,000
$

5,000
18,500
12,000
$835,500
4,000
$831,500


Ex. 10–6
Mar.

June

Nov.

20 Accumulated Depreciation—Delivery Truck
Cash

1,890

11 Delivery Truck
Cash

1,350

1,890

1,350

30 Repairs and Maintenance Expense
Cash

55

Ex. 10–7
a.

No. The $44,500,000 represents the original cost of the equipment. Its
replacement cost, which may be more or less than $44,500,000, is not
reported in the financial statements.

b.

No. The $29,800,000 is the accumulation of the past depreciation charges on
the equipment. The recognition of depreciation expense has no relationship
to the cash account or accumulation of cash funds.

Ex. 10–8
(a) 25% (1/4), (b) 12.5% (1/8), (c) 10% (1/10), (d) 6.25% (1/16), (e) 4% (1/25),
(f) 2.5% (1/40), (g) 2% (1/50)

Ex. 10–9
$3,950 [($60,000 – $12,600) ÷ 12]

Ex. 10–10

$214,000 – $30,000
50,000 hours

= $3.68 depreciation per hour

175 hours at $3.68 = $644 depreciation for January

55


Ex. 10–11
a.

Depreciation Rate per Mile:
Truck
Truck
Truck
Truck

#1
#2

#3
#4

($80,000
($54,000
($72,900
($90,000

– $15,000)
– $6,000)
– $10,900)
– $22,800)

÷
÷
÷
÷

250,000
300,000
200,000
240,000

= $0.26
= $0.16
= $0.31
= $0.28

Truck No.

Rate per Mile
Miles Operated
1
$0.26
21,000
2
0.16
33,500
3
0.31
8,000
4
0.28
22,500
Total………………………………………………………………

Credit to
Accumulated
Depreciation
$ 5,460
5,360
1,860 *
6,300
$18,980

* Mileage depreciation of $2,480 (31 cents × 8,000) is limited to $1,860, which reduces
the book value of the truck to $10,900, its residual value.

b.

Depreciation Expense—Trucks
Accumulated Depreciation—Trucks
Truck depreciation.

Ex. 10–12

18,980

First Year

Second Year

5% of $90,000 = $4,500
or
$90,000 ÷ 20 = $4,500

5% of $90,000 = $4,500
or
$90,000 ÷ 20 = $4,500

10% of $90,000 = $9,000

10% of ($90,000 – $9,000) = $8,100

a.

b.

18,980

Ex. 10–13
a.

4% of ($240,000 – $30,000) = $8,400 or [($240,000 – $30,000)/25]

b.

Year 1: 8% of $240,000 = $19,200
Year 2: 8% of ($240,000 – $19,200) = $17,664


CHAPTER 10

Fixed Assets and Intangible Assets

Ex. 10–14
a.

Year 1: 9/12 × [($36,000 – $6,000) ÷ 10] = $2,250
Year 2: ($36,000 – $6,000) ÷ 10 = $3,000

b.

Year 1: 9/12 × 20% of $36,000 = $5,400
Year 2: 20% of ($36,000 – $5,400) = $6,120

Ex. 10–15
a.

$17,250 [($780,000 – $90,000) ÷ 40]

b.

$366,000 [$780,000 – ($17,250 × 24 yrs.)]

c.

$29,600 [($366,000 – $70,000) ÷ 10 yrs.]

Ex. 10–16
Apr.

a.

Dec.

b.

30 Carpet
Cash

18,000
18,000

31 Depreciation Expense
Accumulated Depreciation—Carpet
Carpet depreciation
[($18,000 ÷ 15 years) × 8/12].

800

800

Ex. 10–17
a.

Cost of equipment………………………………………………………………………………
Accumulated depreciation at December 31, 2014
(4 years at $26,000* per year)………………………………………………………………
Book value at December 31, 2014……………………………………………………………
*

(2)

*

104,000
$316,000

($420,000 – $30,000) ÷ 15 = $26,000

(1)

b.

$420,000

Depreciation Expense—Equipment
Accumulated Depreciation—Equipment
Equipment depreciation ($26,000 × 9/12 = $19,500).
Cash

Accumulated Depreciation—Equipment*
Loss on Sale of Equipment
Equipment

19,500
19,500

275,000
123,500
21,500
420,000

$104,000 + $19,500 = $123,500

10-10
© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.


Ex. 10–18
a.

2011 depreciation expense: $55,800 [($714,000 – $44,400) ÷ 12]
2012 depreciation expense: $55,800
2013 depreciation expense: $55,800

b.
c.

d.

$546,600 [$714,000 – ($55,800 × 3)]
Cash
Accumulated Depreciation—Equipment
Loss on Sale of Equipment
Equipment

525,000
167,400
21,600

Cash
Accumulated Depreciation—Equipment
Equipment
Gain on Sale of Equipment

560,000
167,400

714,000

714,000
13,400

Ex. 10–19
a.

$21,750,000 ÷ 15,000,000 tons = $1.45 depletion per ton
3,600,000 tons × $1.45 = $5,220,000 depletion expense

b.

Depletion Expense
Accumulated Depletion
Depletion of mineral deposit.

5,220,000
5,220,000

Ex. 10–20
a.
b.

($480,000 ÷ 8) + ($80,000 ÷ 5) = $76,000 total patent expense
Amortization Expense—Patents
Patents
Amortized patent rights ($60,000 + $16,000).

76,000
76,000


Ex. 10–21
a.

Property, Plant, and Equipment (in millions):

Current
Year

Preceding

Year

$1,471
3,589
144
2,030

1,932
115
1,665

Less accumulated depreciation and amortization………………
Book value……………………………………………………………

$7,234
2,466
$4,768

$4,667
1,713
$2,954

A comparison of the book values of the current and preceding years
indicates that they increased. A comparison of the total cost and
accumulated depreciation reveals that Apple purchased $2,567 million
($7,234 – $4,667) of additional fixed assets, which was offset by the
additional depreciation expense of $753 million ($2,466 – $1,713) taken
during the current year.
b.

$ 955

Land and buildings……………………………………………………
Machinery, equipment, and internal-use software……………
Office furniture and equipment……………………………………
Other fixed assets related to leases………………………………

We would expect Apple’s book value of fixed assets to increase during the
year as its sales increase. Although additional depreciation expense will
reduce the book value, most companies, such as Apple, invest in new assets
in an amount that is at least equal to the depreciation expense. However,
during periods of economic downturn, companies purchase fewer fixed
assets, and the book value of their fixed assets may decline.

Ex. 10–22
1.

Fixed assets should be reported at cost and not replacement cost.

2.

Land does not depreciate.

3.

Patents and goodwill are intangible assets that should be listed in a separate
section following the Fixed Assets section. Patents should be reported at
their net book values (cost less amortization to date). Goodwill should not be
amortized, but should be only written down upon impairment.

Ex. 10–23
a.

Fixed Asset Turnover Ratio =
Fixed Asset Turnover Ratio =

Revenue
Average Book Value of Fixed Assets
$106,565
($87,711 + $91,985) ÷ 2

Fixed Asset Turnover Ratio = 1.19
b.

Verizon earns $1.19 revenue for every dollar of fixed assets. This is a low
fixed asset turnover ratio, reflecting the high fixed asset intensity in a
telecommunications company. The industry average fixed asset turnover
ratio is slightly lower at 1.10. Thus, Verizon is using its fixed assets
more efficiently than the industry as a whole.

Ex. 10–24
a.

Best Buy: 12.74 ($50,272 ÷ $3,947)
RadioShack: 16.09 ($4,473 ÷ $278)

b.

RadioShack’s fixed asset turnover ratio of 16.09 is higher than Best Buy’s

fixed asset turnover ratio of 12.74. Thus, RadioShack is generating $3.35
($16.09 – $12.74) more revenue for each dollar of fixed assets than is Best
Buy. On this basis, RadioShack is managing its fixed assets more
efficiently than is Best Buy.

Appendix Ex. 10–25
a.

Price (fair market value) of new equipment…………………………
Trade-in allowance of old equipment…………………………………
Cash paid on the date of exchange…………………………………

$275,000
90,000
$185,000

b.

Fair market value (trade-in allowance) of old equipment…………
Less book value of old equipment……………………………………
Gain on exchange of equipment………………………………………

$ 90,000
68,000
$ 22,000

or
Price (fair market value) of new equipment…………………………
Less assets given up in exchange:
Book value of old equipment……………………………………… $ 68,000

Cash paid on the exchange………………………………………… 185,000
Gain on exchange of equipment………………………………………

$275,000

253,000
$ 22,000


Appendix Ex. 10–26
a.

Price (fair market value) of new equipment…………………………
Trade-in allowance of old equipment…………………………………
Cash paid on the date of exchange…………………………………

$275,000
90,000
$185,000

b.

Fair market value (trade-in allowance) of old equipment…………
Less book value of old equipment……………………………………
Gain on exchange of equipment………………………………………

$ 90,000
108,500
$ (18,500)

or
Price (fair market value) of new equipment…………………………
Less assets given up in exchange:
Book value of old equipment……………………………………… $108,500
Cash paid on the exchange………………………………………… 185,000
Loss on exchange of equipment………………………………………

$275,000

293,500
$ (18,500)

Appendix Ex. 10–27
a.

b.

Depreciation Expense—Equipment
Accumulated Depreciation—Equipment
Equipment depreciation ($12,000 × 6/12).
Accumulated Depreciation—Equipment
Equipment
Loss on Exchange of Equipment
Equipment
Cash

6,000
6,000

126,000

220,000
9,000
180,000
175,000

Appendix Ex. 10–28
a.

b.

Depreciation Expense—Trucks
Accumulated Depreciation—Trucks
Truck depreciation ($7,000 × 9/12).
Accumulated Depreciation—Trucks
Trucks
Trucks
Cash
Gain on Exchange of Trucks

5,250
5,250

40,250
75,000
56,000
51,000
8,250


PROBLEMS

Prob. 10–1A
1.
Item
a.
b.
c.
d.
e.*
f.
g.
h.
i.
j.*
k.
l.
m.
n.
o.
p.*
q.
r.
s.*

Land
$

Building

Other
Accounts

2,500
340,000
15,500
5,000
(4,000)
29,000
$ 60,000
6,000
12,000
$(900,000)
5,500
$32,000
11,000
2,000
2,500
(7,500)
800,000
34,500
(500)

$400,000

2.

Land
Improvements

$45,000

$900,000

* Receipt.
3.

Since land used as a plant site does not lose its ability to provide services, it is
not depreciated. However, land improvements do lose their ability to provide
services as time passes and are therefore depreciated.

4.

Since Land Improvements are depreciated, depreciation expense of $1,200
($12,000 × 1/20 × 2) would be overstated and net income would be understated
by $1,200 on the income statement. On the balance sheet, Land would be
understated by $12,000, Land Improvements would be overstated by $10,800
($12,000 – $1,200), and Owner’s Capital would be understated by $1,200.


Prob. 10–2A

Depreciation Expense

1.

Year
2012
2013
2014
Total

a. StraightLine
Method

b. Units-ofOutput
Method

c. DoubleDeclining-Balance
Method

$ 40,500
40,500
40,500

$ 58,050
35,775
27,675

$ 90,000
30,000
1,500

$121,500

$121,500

$121,500

Calculations:
Straight-line method:
($135,000 – $13,500) ÷ 3 = $40,500 each year

Units-of-output method:
($135,000 – $13,500) ÷ 18,000 hours = $6.75 per hour
2012:
2013:
2014:

8,600 hours × $6.75 = $58,050
5,300 hours × $6.75 = $35,775
4,100 hours × $6.75 = $27,675

Double-declining-balance method:
2012:
2013:
2014:

$135,000 × 2/3 = $90,000
($135,000 – $90,000) × 2/3 = $30,000
($135,000 – $90,000 – $30,000 – $13,500*) = $1,500

* Book value should not be reduced below the residual value of $13,500.
2.

The double-declining-balance method yields the most depreciation expense in
2012 of $90,000.

3.

Over the three-year life of the equipment, all three depreciation methods yield
the same total depreciation, $121,500, which is the cost of the equipment of
$135,000 less the residual value of $13,500.

Prob. 10–3A
a.

Straight-line method:
2012:
2013:
2014:
2015:

b.

[($270,000 – $9,000) ÷ 3] × 9/12……………………………………………
($270,000 – $9,000) ÷ 3……………………………………………………
($270,000 – $9,000) ÷ 3……………………………………………………
[($270,000 – $9,000) ÷ 3] × 3/12…………………………………………

$65,250
87,000
87,000
21,750

Units-of-output method:
2012:
2013:
2014:
2015:

7,500

5,500
4,000
1,000

hours
hours
hours
hours

× $14.50*………………………………………………………
× $14.50………………………………………………………
× $14.50………………………………………………………
× $14.50………………………………………………………

$108,750
79,750
58,000
14,500

* ($270,000 – $9,000) ÷ 18,000 hours = $14.50 per hour
c.

Double-declining-balance method:
2012:
2013:
2014:
2015:

$135,000
$270,000 × 2/3 × 9/12…………...…………………………………………

90,000
($270,000 – $135,000) × 2/3………………………………………………
30,000
($270,000 – $135,000 – $90,000) × 2/3……………………………………
6,000
($270,000 – $135,000 – $90,000 – $30,000 – $9,000*)………………

* Book value should not be reduced below $9,000, the residual value.


Prob. 10–4A

Accumulated

1.
Year

a.

Depreciation

Depreciation,

Book Value,

Expense

End of Year

End of Year

$142,000
284,000
426,000
568,000
710,000

$658,000
516,000
374,000
232,000
90,000

$320,000
512,000
627,200
696,320
710,000

$480,000
288,000
172,800
103,680
90,000

1………………………………………………… $142,000 *
142,000
2………………………………………………
3………………………………………………… 142,000
142,000

4………………………………………………
5………………………………………………… 142,000
* [($800,000 – $90,000) ÷ 5]

b.

1
2
3
4
5

[$800,000 × (1/5) × 2]………………… $320,000
192,000
[$480,000 × (1/5) × 2]…………………
115,200
[$288,000 × (1/5) × 2]…………………
69,120
[$172,800 × (1/5) × 2]…………………
($800,000 – $696,320 – $90,000)……
13,680 *

* Book value should not be reduced below $90,000, the residual value.
2.

Cash
Accumulated Depreciation—Equipment
Equipment
Gain on Sale of Equipment*

135,000
696,320
800,000
31,320

* $135,000 – $103,680
3.

Cash
Accumulated Depreciation—Equipment
Loss on Sale of Equipment*
Equipment
* $103,680 – $88,750

88,750
696,320
14,930
800,000


Prob. 10–5A
2012
Jan.

Nov.

Dec.

2013
Jan.

Apr.

4 Delivery Truck
Cash
2 Truck Repair Expense
Cash
31 Depreciation Expense—Delivery Truck
Accum. Depreciation—Delivery Truck
Delivery truck depreciation.
[$28,000 × (1/4 × 2)]

6 Delivery Truck
Cash
1 Depreciation Expense—Delivery Truck
Accum. Depreciation—Delivery Truck
Delivery truck depreciation.
[($28,000 – $14,000) × (1/4 × 2) × 3/12]
1 Accum. Depreciation—Delivery Truck
Cash
Delivery Truck
Gain on Sale of Delivery Truck

June

Dec.

11 Truck Repair Expense
Cash
31 Depreciation Expense—Delivery Truck

Accum. Depreciation—Delivery Truck
Delivery truck depreciation.
[$48,000 × (1/5 × 2)]

28,000
28,000
675
675
14,000
14,000

48,000
48,000
1,750
1,750

15,750
15,000
28,000
2,750
450
450
19,200
19,200


Prob. 10–5A (Concluded)
2014
July

Oct.

1 Delivery Truck
Cash
2 Depreciation Expense—Delivery Truck
Accum. Depreciation—Delivery Truck
Delivery truck depreciation.
[($48,000 – $19,200) × (1/5 × 2) × 9/12]
2 Cash
Accum. Depreciation—Delivery Truck
Loss on Sale of Delivery Truck
Delivery Truck

Dec.

31 Depreciation Expense—Delivery Truck
Accum. Depreciation—Delivery Truck
Delivery truck depreciation.
[$54,000 × (1/8 × 2) × 1/2]

54,000
54,000
8,640
8,640

16,750
27,840
3,410
48,000
6,750

6,750


Prob. 10–6A
1.

2.

b.

c.

a.

$1,600,000 ÷ 5,000,000 board feet = $0.32 per board foot;
1,100,000 board feet × $0.32 per board foot = $352,000

b.

Loss from impaired goodwill, $3,750,000

c.

$6,600,000 ÷ 12 years = $550,000;
3/4 of $550,000 = $412,500

a.

Depletion Expense
Accumulated Depletion

Depletion of timber rights.
Loss from Impaired Goodwill
Goodwill
Impaired goodwill.
Amortization Expense—Patents
Patents
Patent amortization.

352,000
352,000

3,750,000
3,750,000

412,500
412,500


Prob. 10–1B
1.
Item
a.
b.
c.
d.
e.
f.
g.*
h.
i.

j.*
k.
l.
m.
n.
o.
p.
q.*
r.
s.*

Land
$

Building

Other
Accounts

3,600
780,000
23,400
15,000
$ 75,000
10,000
(3,400)
18,000
8,400
$(800,000)
13,400

3,000
2,000
$14,000
21,600
40,000
(4,500)
800,000
(1,400)

$860,000

2.

Land
Improvements

$35,600

$922,000

* Receipt.
3.

Since land used as a plant site does not lose its ability to provide services, it is
not depreciated. However, land improvements do lose their ability to provide
services as time passes and are therefore depreciated.

4.

Since Land Improvements are depreciated, depreciation expense of $4,320

($21,600 × 1/10 × 2) would be understated and net income would be overstated
by $4,320 on the income statement. On the balance sheet, Land would be
overstated by $21,600, Land Improvements would be understated by $17,280
($21,600 – $4,320), and Owner’s Capital would be overstated by $4,320.


Prob. 10–2B

Depreciation Expense

1.

Year

a. StraightLine
Method

b. Units-ofOutput
Method

c. DoubleDeclining-Balance
Method

$ 71,250
71,250
71,250
71,250

$102,600
91,200

62,700
28,500

$160,000
80,000
40,000
5,000

$285,000

$285,000

$285,000

2013
2014
2015
2016
Total
Calculations:

Straight-line method:
($320,000 – $35,000) ÷ 4 = $71,250 each year
Units-of-output method:
($320,000 – $35,000) ÷ 20,000 hours = $14.25 per hour
2013:
2014:
2015:
2016:

7,200
6,400
4,400
2,000

hours
hours
hours
hours

× $14.25
× $14.25
× $14.25
× $14.25

= $102,600
= $91,200
= $62,700
= $28,500

Double-declining-balance method:
2013:
2014:
2015:
2016:

$320,000 × [(1/4) × 2] = $160,000
($320,000 – $160,000) × [(1/4) × 2] = $80,000
($320,000 – $160,000 – $80,000) × [(1/4) × 2] = $40,000
($320,000 – $160,000 – $80,000 – $40,000 – $35,000*) = $5,000

* Book value should not be reduced below the residual value of $35,000.
2.

The double-declining-balance method yields the most depreciation expense in
2013 of $160,000.

3.

Over the four-year life of the equipment, all three depreciation methods yield
the same total depreciation, $285,000, which is the cost of the equipment of
$320,000 less the residual value of $35,000.


Prob. 10–3B
a.

Straight-line method:
2012:
2013:
2014:
2015:

b.

[($108,000
[($108,000
[($108,000
[($108,000

÷ 3] × 3/12……………………………………………
÷ 3]…………………………………………………
÷ 3]……………………………………………………
÷ 3] × 9/12…………………………………………

$ 8,400

× $8.40*………………………………………………………
× $8.40…………………………………………………………
× $8.40………………………………………………………
× $8.40…………………………………………………………

$11,340

– $7,200)
– $7,200)
– $7,200)
– $7,200)

33,600
33,600
25,200

Units-of-output method:
2012:
2013:
2014:
2015:

1,350

4,200
3,650
2,800

hours
hours
hours
hours

35,280
30,660
23,520

* ($108,000 – $7,200) ÷ 12,000 hours = $8.40 per hour
c.

Double-declining-balance method:
2012:
2013:
2014:
2015:

$108,000 × 2/3 × 3/12…………...…………………………………………
($108,000 – $18,000) × 2/3…………………………………………………
($108,000 – $18,000 – $60,000) × 2/3……………………………………
($108,000 – $18,000 – $60,000 – $20,000 – $7,200*)…………………

* Book value should not be reduced below $7,200, the residual value.

$18,000

60,000
20,000
2,800


Prob. 10–4B
1.

Accumulated
Depreciation

Depreciation,

Book Value,

Expense

End of Year

End of Year

$25,625*
25,625
25,625
25,625

$ 25,625
51,250
76,875
102,500

$84,375
58,750
33,125
7,500

$55,000
27,500
13,750
6,250*

$ 55,000
82,500
96,250
102,500

$55,000
27,500
13,750
7,500

Year

a.

1…………………………………………………
2…………………………………………………
3…………………………………………………
4…………………………………………………
* [($110,000 – $7,500) ÷ 4]

b.

1
2
3
4

[$110,000 × (1/4) × 2]………………………
[$55,000 × (1/4) × 2]………………………
[$27,500 × (1/4) × 2]………………………
($110,000 – $96,250 – $7,500)…………

* Book value should not be reduced below $7,500, the residual value.
2.

Cash
Accumulated Depreciation—Equipment
Equipment
Gain on Sale of Equipment*

18,000
96,250
110,000
4,250

* $18,000 – $13,750
3.

Cash

Accumulated Depreciation—Equipment
Loss on Sale of Equipment*
Equipment
* $13,750 – $10,500

10,500
96,250
3,250
110,000