Solution manual financial accounting by valix ch16 20

210

CHAPTER 16
Problem 16-1
1.
2.
3.
4.
5.

C
D
D
D
B

Problem 16-2
Cash paid for land and old building
Removal of old building
Payment to tenants of old building to vacate premises
Architect fee
Building permit
Fee for title search
Survey before construction
Excavation
Cost of new building constructed
Assessment fee
Cost of grading, leveling and landfill
Driveways and walks
Temporary quarters for construction crew
Temporary building to house tools and materials

Cost of construction changes

Land
1,000,000
50,000
15,000

Building

200,000
30,000
10,000
20,000
100,000
6,000,000
5,000
45,000

_________
1,145,000

40,000
80,000
60,000
50,000
6,560,000

Note: The cost of replacing windows is treated as expense.
Problem 16-3
Land

Land
improvement
Cost of land
Legal fees
Payment of mortgage
Payment of taxes
Cost of razing building
Proceeds from sale of materials
Grading and drainage
Architect fee
Payment to contractor
Interest cost
Driveway and parking lot
Cost of trees, shrubs and other landscaping
Cost of installing lights in parking lot
Premium for insurance

2,000,000
10,000
50,000
20,000
30,000
(
15,000

Building

5,000)
200,000
8,000,000

300,000

_______
2,120,000

25,000
8,525,000

40,000
55,000
5,000
_______
100,000

The payment for medical bills and the cost of open house party are outright expenses
because they are not a necessary cost of acquiring the land and building.


211
Problem 16-4
Office
Land
improvements
Purchase price
Materials
Excavation
Labor
Remodeling
Cash discounts
Supervision

Compensation insurance
Clerical and other expenses
Paving of streets
Plans and specifications
Legal cost - land

1,300,000

Factory
building
building

Land

700,000
3,200,000
100,000
2,500,000
200,000
(

60,000)
30,000
50,000
30,000
40,000

10,000
1,310,000

________
900,000

150,000
________
6,000,000

______

40,000

1. The imputed interest on corporation’s own money is not capitalizable.
2. The payment of claim for injuries not covered by insurance and the legal cost of injury
claim are treated as expense.
3. Saving on construction is not recognized.

Problem 16-5
Taxes in arrears
Payment for land
Demolition of old building
Total cost of land

50,000
1,000,000
100,000
1,150,000

Architect fee
Payment to city hall
Contract price

Safety fence around construction site
Safety inspection on building
30,000
Removal of safety fence
Total cost of factory building

230,000
120,000
5,000,000
35,000
20,000
5,435,000

Problem 16-6
Purchase price
Title clearance fee
Cost of razing old building
Scrap value of old building
Total cost of land
Construction cost of new building

3,000,000
50,000
100,000
( 10,000)
3,140,000
8,000,000


212

Problem 16-7
Purchase price
4,000,000
Remodeling
Salvage materials
Grading, leveling and other permanent improvement
Repairs

Land
Building
1,000,000
150,000
5,000)

(
50,000
________
1,050,000

10,000

4,155,000
The repairs are capitalized because they are necessary prior to the occupancy and
intended use of the building.

Problem 16-8
Land
Machinery
Fair value
Repairs

Remodeling
Invoice price
Discount
Base

1,500,000

_________
1,500,000

Building
5,000,000
200,000
300,000
1,000,000
(
20,000)
_________
50,000
5,500,000

1,030,000
The driveway and parking lot are charged to land improvements.

Problem 16-9
Land
Machinery
Fair value
1,500,000
Repairs

Special tax assessment
Platform
Remodeling
Purchase price
Discount
Freight
Installation

1,500,000

Building
4,000,000
200,000

30,000
70,000
400,000
(
_________
1,530,000

_________
4,600,000

800,000
40,000)
20,000
30,000

2,380,000

Problem 16-10
Purchase price
Commission

2,000,000
100,000

Contract price
6,000,000
Plans, specification


Legal fees
Title guarantee
Cost of razing old building
Salvage value of materials
Cost of land

50,000
10,000
75,000
(
5,000)
2,230,000

and blueprint
Architectural fee
Cost of new building

100,000
250,000
6,350,000

213
Problem 16-11
Land

Leasehold
Building improvements

Machinery
Balances, Jan. 1
1,000,000
Acquisition of land - #621:
Purchase price
Commission
Clearing cost
Sale of timber and gravel
Acquisition of land - #622:
Purchase price
Cost of demolition
New building:
Construction cost
Excavation fee
Architectural design
Building permit
Improvements:
Electrical work
Construction extension

(800,000 x 1/2)
Improvements on office space
Purchase of new machine:
Invoice price
Freight
Unloading charge
Balances, December 31
2,800,000

1,500,000

4,000,000

500,000

3,000,000
60,000
15,000
(
5,000)
4,000,000
300,000
5,000,000
50,000
150,000
40,000
350,000
400,000
650,000

_________
8,870,000

1,750,000
20,000
_________
_________
__ 30,000
9,240,000
1,900,000

The third tract of land should be presented as current asset because it was “classified as
held for sale”.

Problem 16-12
Land
Land

improvements

Building

Machinery
Balances, Jan. 1
1,500,000
Land acquired
Issuance of share capital:

3,500,000
1,250,000

900,000

7,000,000


12/36 x 4,500,000
24/36 x 4,500,000
New machinery
New parking lot, street and
sidewalk
Machinery sold
Balances, Dec. 31
4,400,000

1,500,000
3,000,000
3,400,000
________
6,250,000

750,000
________
_________
( 500,000)
1,650,000
10,000,000

The “assessed values” do not represent the fair values of the land and building but are
used in allocating the market value of the share capital.

214
Problem 16-13
Invoice price
Cash discount
Freight
Installation cost
Testing cost

Problem 16-14
3,000,000 Invoice cost
4,000,000
( 150,000) Discount (5% x 4,000,000)
( 200,000)
50,000
Transportation
40,000
30,000
Installation
100,000
20,000
Trial run-salary of engineer
50,000
2,950,000
Cash allowance
(
60,000)
3,930,000

Problem 16-15

Cost paid (896,000 – 96,000)
800,000
Cost of transporting machine
Installation cost
Testing cost
Safety rails and platform
Water device
Cost of adjustment
Estimated dismantling cost
Total cost of machine

30,000
50,000
40,000
60,000
80,000
75,000
65,000
1,200,000

Note that the estimated dismantling cost is capitalized because the company has a
present obligation as required by contract. In the absence of a present obligation,
the estimated dismantling cost is not capitalized.

Problem 16-16
Second hand market value
Overhaul and repairs
Installation
Testing
Hauling

Safety device

2,400,000
150,000
80,000
110,000
10,000
250,000
3,000,000

Problem 16-17
1. Materials
Labor
Installation

600,000
400,000
60,000


Trial run
Discount
Overhead

(

30,000
40,000)
150,000
1,200,000

2. Adjusting entries:
1. Loss on retirement of old machinery
Machinery (20,000 – 14,000)
6,000

6,000

215
2. Purchase discount
Machinery

40,000

3. Machinery
Factory overhead

150,000

4. Profit on construction
Machinery

100,000

40,000
150,000
100,000

5. Tools
Machinery

90,000

6. Depreciation – tools
Tools (90,000 / 3 x 4/12)

10,000

7. Machinery
Accumulated depreciation
Depreciation – machinery

90,000
10,000
128,600
40,000
88,600

Depreciation recorded
Correct depreciation (1,200,000 / 10 x 4/12)
Overdepreciation

128,600
40,000
88,600

Problem 16-18
Initial design fee
Executive chairs and desks
Storm windows and installation

Installation of automatic door opening system
Overhead crane
Total capital expenditures

150,000
200,000
500,000
200,000
350,000
1,400,000

Problem 16-19
1. Accumulated depreciation
Loss on retirement of building
Building
Building
Cash
Depreciation (8,100,000 / 20)

400,000
1,600,000
2,000,000
2,500,000
2,500,000
405,000


Accumulated depreciation

405,000

Building (9,000,000 + 2,500,000 – 2,000,000)
9,500,000
Accumulated depreciation (1,800,000 – 400,000)
1,400,000
Book value
2. Accumulated depreciation (1,960,000 x 20%)
Loss on retirement of building
Building (2,500,000 x .784)

8,100,000
392,000
1,568,000
1,960,000

216
Building
Cash
Depreciation (8,132,000 / 20)
Accumulated depreciation

2,500,000
2,500,000
406,600
406,600

Building (9,000,000 – 1,960,000 + 2,500,000)
9,540,000
Accumulated depreciation (1,800,000 – 392,000)
1,408,000

Book value

8,132,000

Problem 16-20
a. Annual depreciation (8,400,000 / 30)

280,000

Age of building (7,000,000 / 280,000)
b. Building
Cash

25 years
2,500,000
2,500,000

c. Building (8,400,000 + 2,500,000)
10,900,000
Less: Accumulated depreciation
Book value
d. Depreciation (3,900,000 / 15)
Accumulated depreciation

7,000,000
3,900,000
260,000
260,000

Original life

30
Less: Expired life
Remaining useful life, beginning of current year

25

Add: Extension in life
Revised useful life

10

5
15

Problem 16-21


1. Building
Cash
2. Depreciation
Accumulated depreciation
3. Building
Cash
Accumulated depreciation (2,500,000 / 50 x 2)
Loss on retirement of building
Cash

10,500,000
10,500,000
200,000

200,000
3,000,000
3,000,000
100,000
2,400,000
2,500,000

4. Depreciation (10,700,000 – 500,000 / 48)
Accumulated depreciation

212,500
212,500

217
Building (10,500,000 + 3,000,000 – 2,500,000)
11,000,000
Accumulated depreciation (400,000 – 100,000)
300,000
Book value – 1/1/2008

10,700,000

Problem 16-22
1. Machinery
Cash
2. Depreciation
Accumulated depreciation
3. Depreciation (3,600,000 / 6)
Accumulated depreciation
Cost

Accumulated depreciation:
2005
2006
Book value
Residual value
Remaining depreciable cost – 1/1/2007

5,000,000
5,000,000
450,000
450,000
600,000
600,000
5,000,000
450,000
450,000

4. Machinery
Cash

300,000

5. Depreciation (3,300,000 / 5)
Accumulated depreciation

660,000

Cost
Accumulated depreciation (900,000 + 600,000)
1,500,000

Book value – 1/1/2008

900,000
4,100,000
500,000
3,600,000
300,000
660,000
5,300,000
3,800,000


Residual value
Remaining depreciable cost – 1/1/2008

500,000
3,300,000

Problem 16-23
1. Depreciation (60,000 x 3/12)
Accumulated depreciation
Accumulated depreciation (480,000 + 15,000)
Loss on retirement of store equipment
Store equipment
2. Depreciation (150,000 x 4/12)
Accumulated depreciation

15,000
15,000
495,000

105,000
600,000
50,000
50,000

218
Cash
Accumulated depreciation (1,050,000 + 50,000)
Loss on sale of office equipment
Office equipment
3. Depreciation (600,000 x 5/12)
Accumulated depreciation
Delivery equipment – new
Accumulated depreciation
Cash (5,000,000 – 750,000)
Delivery equipment – old
Gain on exchange (750,000 – 350,000)

100,000
1,100,000
300,000
1,500,000
250,000
250,000
5,000,000
2,650,000
4,250,000
3,000,000
400,000

Original cost
Less: Accumulated depreciation to date (2,400,000 + 250,000)
2,650,000
Book value
4. Accumulated depreciation
Office equipment
5. Depreciation (900,000 x 9/12)
Accumulated depreciation
Accumulated depreciation (2,700,000 + 675,000)
Fire loss
Machinery

3,000,000
350,000

1,200,000
1,200,000
675,000
675,000
3,375,000
1,125,000
4,500,000

Problem 16-24
1. Discount on bonds payable
Machinery

500,000
500,000

Interest expense (500,000 / 10 x 9/12)
Discount on bonds payable

37,500

Accumulated depreciation
Depreciation

75,000

37,500
75,000

Depreciation for 9 months
600,000
Depreciation for 12 months (600,000 / 9/12)
Depreciable cost (800,000 x 5 years)
Cost
Less: Residual value
Depreciable cost

800,000
4,000,000
Per book
5,000,000
1,000,000
4,000,000

Adjusted

4,500,000
1,000,000
3,500,000

219
Correct depreciation for 9 months (3,500,000 / 5 x 9/12)
525,000
Less: Depreciation recorded
Overstatement
2. Interest expense
Machinery (3,500,000 – 3,200,000)
Machinery
Freight in
Accumulated depreciation
Depreciation

600,000
75,000
300,000
300,000
150,000
150,000
30,000
30,000

Depreciation per book
Correct depreciation (3,350,000 / 5)
Overstatement
3. Loss on exchange
Machinery

Cost per book
Correct cost
Trade in value
Add: Cash paid
Overstatement

700,000
670,000
30,000
390,000
390,000
3,000,000
150,000
2,460,000

Trade in value
Less: Book value
Loss on exchange
4. Allowance for doubtful accounts
Loss on exchange – accounts receivable

2,610,000
390,000
150,000
540,000
(390,000)

840,000
60,000

Treasury share
900,000
Per book
Machinery
Accounts receivable
Treasury shares
Machinery
Should be
Machinery
Allowance for doubtful accounts (20% x 4,200,000)
Loss on accounts receivable
Accounts receivable

4,200,000
4,200,000
4,200,000
4,200,000
3,300,000
840,000
60,000
4,200,000

220
Treasury shares
Machinery

3,300,000
3,300,000

The cost of treasury shares acquired for noncash consideration is usually
measured by the recorded amount of the noncash asset surrendered (SFAS No. 18).

Problem 16-25 Answer A
Allocated cost of land (2,400,000 / 6,000,000 x 5,500,000)
2,200,000
Property taxes (2,400 / 6,000 x 250,000)
Cost of survey
5,000
Total cost of land

100,000
2,305,000

Incidentally, the cost of the building is:
Allocated cost (3,600 / 6,000 x 5,500,000)
3,300,000
Property taxes (3,600 / 6,000 x 250,000)
Renovation
Total cost of building

150,000
500,000
3,950,000

Problem 16-26 Answer A
Purchase price
Payments to tenants
Demolition of old building
Legal fees

Title insurance
30,000
Proceeds from sale of materials

4,000,000
200,000
100,000
50,000
(

10,000)


Total cost of land

4,370,000

Problem 16-27 Answer D
Land
Building
Purchase price of land
Legal fees for contract
Architect fee
Demolition of old building
Construction cost
Total cost

600,000
20,000
80,000

50,000
_______
670,000

3,500,000
3,580,000

Problem 16-28 Answer D
Acquisition price
Option of building acquired
Repairs
Total cost

7,000,000
200,000
500,000
7,700,000

221
Problem 16-29 Answer D
Purchase price
Shipping
Installation
Testing
Total cost

250,000
5,000
10,000
35,000

300,000

Problem 16-30 Answer A
Problem 16-31 Answer A
All expenditures are capitalized.

Problem 16-32 Answer A
All costs are capitalized.

Problem 16-33 Answer C
Continuing and frequent repairs
Repainting of the plant building
Partial replacement of roof tiles
Repair and maintenance expense

400,000
100,000
150,000
650,000


Problem 16-34 Answer B
Problem 16-35 Answer B

222
CHAPTER 17
Problem 17-1
1.
2.
3.

4.
5.
6.
7.
8.
9.
10.

A
D
B
D
D
D
D
C
C
B

Problem 17-3

Problem 17-2
1.
2.
3.
4.
5.
6.
7.
8.

9.
10.

C
A
D
D
D
B
C
B
A
A


Depreciation Table – Straight Line
Year
Particular
value
Acquisition cost
2008
2009
2010
2011
2012

Depreciation
120,000
120,000
120,000

120,000
120,000
600,000

Accumulated
depreciation

Book
635,000
515,000
395,000
275,000
155,000
35,000

120,000
240,000
360,000
480,000
600,000

Depreciation Table – Service Hours Method
Year

Particular
Acquisition cost
2008
14,000 x 10
495,000
2009

13,000 x 10
365,000
2010
10,000 x 10
265,000
2011
11,000 x 10
155,000
2012
12,000 x 10
35,000

Accumulated
Depreciation
depreciation
140,000

140,000

130,000

270,000

100,000

370,000

110,000

480,000

120,000

600,000

Book value
635,000

600,000
Depreciation rate per hour = 600,000 / 60,000 = 10

223
Depreciation Table – Production Method
Year
2008
2009
2010
2011
2012

Particular
Acquisition cost
34,000 x 4
32,000 x 4
25,000 x 4
29,000 x 4
30,000 x 4

Depreciation
136,000

128,000
100,000
116,000
120,000
600,000

Accumulated
Depreciation
136,000
264,000
364,000
480,000
600,000

Depreciation rate per unit of output = 600,000 / 150,000 = 4

Book value
635,000
499,000
371,000
271,000
155,000
35,000


Depreciation Table – Sum of Years’ Digits
Year

Particular
Acquisition cost

2008
5/15 x 600,000
435,000
2009
4/15 x 600,000
275,000
2010
3/15 x 600,000
155,000
2011
2/15 x 600,000
75,000
2012
1/15 x 600,000
35,000

Depreciation

Accumulated
depreciation

200,000

200,000

160,000

360,000

120,000

480,000

80,000

560,000

40,000

600,000

Book value
635,000

600,000
SYD = 1 + 2 + 3 + 4 + 5 = 15
Depreciation Table – Double Declining Balance
Year

Particular
Acquisition cost
2008
40% x 635,000
381,000
2009
40% x 381,000
228,600
2010
40% x 228,600
137,160

2011
40% x 137,160
82,296
2012
82,296 – 35,000
35,000

Depreciation

Accumulated
depreciation

254,000

254,000

152,400

406,400

91,440

497,840

54,864

552,704

47,296

600,000

Book value
635,000

600,000
Fixed rate = 100% / 5 = 20% x 2 = 40%
Problem 17-4
a. Straight line method:
2008
2009

27,500
55,000

224
b. Working hours method:
550,000
Rate per hour = ------------------- = 11
50,000 hours


2008 (3,000 hours x 11)
2009 (5,000 hours x 11)

33,000
55,000

c. Output method:
550,000

Rate per unit = -------------------- = 2.75
200,000 units
2008 (18,000 units x 2.75)
2009 (22,000 units x 2.75)
60,500
d. Sum of years’ digits:
49,500

10 + 1
SYD = 10 (------------) = 55
2
2008 (10/55 x 550,000 x 6/12)

50,000

2009 Jan. 1-June 30
July 1-Dec. 31 (9/55 x 550,000 x 6/12)

50,000

45,000

95,000

e. Double declining balance:
2008 (570,000 x 20% x 6/12)
57,000
2009 (570,000 – 57,000 x 20%)

102,600

Problem 17-5
Fixed rate = 1.00 - .5623 or .4377
2008 (500,000
2009 (500,000
2010 (500,000
2011 (500,000
38,895

x .4377)
– 218,850 x .4377)
- 341,909 x .4377)
– 411,105 – 50,000)

218,850
123,059
69,196
450,000

Problem 17-6
a. Sum of years’ digit
April 1, 2008 – March 31, 2009 (1,080,000 x 8/36)
240,000
April 1, 2009 – March 31, 2010 (1,080,000 x 7/36)
210,000

Depreciation from April 1 to December 31, 2008 (240,000 x 9/12)

225
180,000

Depreciation for 2009:
January 1 – March 31 (240,000 x 3/12)
April 1 – December 31 (210,000 x 9/12)

60,000
157,500
217,500

b. Double declining balance
Fixed rate = 100 / 8 = 12.5 x 2 = 25%
2008 (1,200,000 x 25% x 9/12)
2009 (1,200,000 – 225,000 x 25%)
243,750

225,000

Problem 17-7
a. Service hours method:
960,000 – 60,000
Depreciation rate per hour = ---------------------------- = 112.50
8,000 hours
2008 (1,000 hours x 112.50)
112,500
2009 (2,000 hours x 112.50)
225,000
b. Sum of years’ digits:
Sum of half years

=

45

2008 (9/45 x 900,000 x 3/6)
90,000
2009 January 1 – March 31 (9/45 x 900,000 x 3/6)
90,000
April 1 – September 30 (8/45 x 900,000)
160,000
October 1 – December 31 (7/45 x 900,000 x 3/6)

70,000
320,000

Problem 17-8
a. Rate per unit (900,000 / 180,000)
5.00
2008 (5,000 x 5)
2009 (20,000 x 5)
b. Double declining balance:
Fixed rate (100% / 8 x 2)
25%
2008 (920,000 x 25% x 6/12)
115,000

25,000
100,000

2009 (920,000 – 115,000 x 25%)

201,250

226
c. Sum of years’ digits:
July 1 – December 31, 2008 (900,000 x 8/36 x 6/12)

100,000

January 1 – June 30, 2009 (900,000 x 8/36 x 6/12)
100,000
July 1 – December 31, 2009 (900,000 x 7/36 x 6/12)
Depreciation for 2009

87,500
187,500

Problem 17-9
Depreciable
Annual
Assets
depreciation
Machinery
Office equipment
Building
Delivery equipment

Cost
310,000

110,000
1,600,000
430,000
2,450,000

Salvage

10,000
10,000
100,000
30,000

Life in
cost

300,000
100,000
1,500,000
400,000
2,300,000

years

5
10
15
4

60,000
10,000

100,000
100,000
270,000

a. Composite rate = 270,000 / 2,450,000 = 11.02%
b. Composite life

= 2,300,000 / 270,000 =

8.52 years

c. Depreciation
Accumulated depreciation

270,000
270,000

Problem 17-10
Assets
years
Building

Depreciable
Salvage

Cost

depreciation
6,100,000
300,000

Machinery
2,550,000
500,000
Equipment
1,030,000
9,680,000
900,000

100,000

Life in
Annual
cost

6,000,000

50,000

2,500,000

30,000

1,000,000
9,500,000

20
5
10

100,000

a. Composite depreciation rate = 900,000 / 9,680,000 = 9.3%
b. Average life = 9,500,000 / 900,000 = 10.56 years
c. Depreciation
Accumulated depreciation
d. Cash

900,000
900,000
40,000


Accumulated depreciation
Machinery

2,510,000
2,550,000

e. Depreciation
663,090
Accumulated depreciation (9,680,000 – 2,550,000 x 9.3%)
663,090

227
Problem 17-11
2003
Jan. 1 Machinery
Cash
Dec. 31 Depreciation (20% x 900,000)
Accumulated depreciation

900,000
900,000
180,000
180,000

2004
Dec. 31 Depreciation
Accumulated depreciation

180,000

2005
Dec. 31 Depreciation
Accumulated depreciation

180,000

2006
Dec. 31 Depreciation
Accumulated depreciation

180,000

Cash
Accumulated depreciation
Machinery (4 x 45,000)
2007
Dec. 31 Depreciation (720,000 x 20%)
Accumulated depreciation

Cash
Accumulated depreciation
Machinery (14 x 45,000)
2008
Dec. 31 Depreciation
Accumulated depreciation

180,000

180,000

180,000
10,000
170,000
180,000
144,000
144,000
15,000
615,000
630,000
9,000
9,000

Remaining cost
Less: Balance of accumulated depreciation
Book value
Less: Salvage proceeds
Maximum depreciation
Cash

90,000
79,000
11,000
2,000
9,000
2,000


Accumulated depreciation
Machinery (4 x 45,000)

88,000
90,000

228
Problem 17-12
1. Old machinery overhauled (240,000 + 60,000)
Accumulated depreciation
2005 (240,000 / 8)
2006
2007
Total
Book value – January 1, 2008

300,000
30,000
30,000
30,000
90,000
210,000

Old machinery overhauled (210,000 / 7 years)
Remaining cost of old machinery (1,152,000 – 240,000 / 8)
New machinery (460,800 / 8 x 5/12)
Total depreciation
2. Old machinery
New machinery
Cost of overhaul
Total cost
Accumulated depreciation:
Balance – January 1
Depreciation for 2008
600,000
Book value – December 31, 2008

30,000
114,000
24,000
168,000
1,152,000
460,800
60,000
1,672,800
432,000
168,000
1,072,800

Problem 17-13
Main machine (7,500,000 / 10)
First component – from January 1 to April 1, 2008 (1,200,000 / 6 x 3/12)

50,000
Second component – from April 1 to December 31, 2009
(2,000,000 – 400,000 / 4 x 9/12)
Total depreciation for 2008

750,000

300,000
1,100,000

The second component is depreciated over the remaining life of the main machine. The
original life is 10 years and 6 years already expired. Thus, the remaining life is 4 years.

Problem 17-14
1. Tools
Cash

40,000

2. Tools
Cash

20,000

3. Cash

40,000
20,000
4,000

Tools

4,000

4. Depreciation
Tools

46,000
46,000

Balance of tools account
Less: Estimated cost on December 31
Depreciation

196,000
150,000
46,000

229
Problem 17-15
Retirement method
March

1 Electric meters
Cash

250,000

1 Cash

Depreciation
Electric meters

20,000
160,000

July

250,000

1 Electric meters
Cash

180,000
400,000
400,000

December 1 Electric meters
Cash

200,000
200,000

1 Cash
Depreciation
Electric meters

15,000
135,000
150,000

Replacement method
March
July

1 Depreciation (250,000 – 20,000)
Cash
1 Electric meters
Cash

230,000
230,000
400,000
400,000

December 1 Depreciation (200,000 – 15,000)
Cash

185,000
185,000

Problem 17-16
Retirement method
2008 Tools
Cash

120,000
120,000

Cash (300 x 50)

Depreciation
Tools (300 x 200)
2009 Tools

15,000
45,000
60,000
360,000


Cash

360,000

Cash (700 x 70)
Depreciation
Tools

49,000
111,000
160,000

230
500 x 200
200 x 300
Cost of tools retired

100,000
60,000
160,000

Replacement method

2008 Tools (100 x 300)
Depreciation (300 x 30)
Cash

30,000
90,000
120,000

Cash
Depreciation

15,000
15,000

2009 Tools (200 x 400)
Depreciation (700 x 400)
Cash

80,000
280,000
360,000

Cash
Depreciation

49,000
49,000
Inventory method

2008 Tools
Cash
Cash
Tools
Depreciation (265,000 – 200,000)
Tools
2009 Tools
Cash
Cash
Tools
Depreciation (511,000 - 350,000)
Tools

Problem 17-17
1. Land (350,000 + 450,000)
800,000

120,000
120,000
15,000
15,000
65,000
65,000
360,000
360,000
49,000
49,000
161,000
161,000

Land acquired (380,000 + 25,000 + 45,000)

450,000

2. Depreciation of land improvements (180,000 / 15)

12,000

3. Depreciation of building (4,500,000 – 1,050,000 x 7.5%)
258,750

231
4. Depreciation of machinery and equipment
(1,160,000 – 60,000 / 10)
(300,000 / 10)
30,000
(60,000 / 10 x 6/12)
3,000

110,000

143,000
5. Fixed rate (100% / 3 x 1.5)
50%
(1,800,000 – 1,344,000 x 50%)
228,000

Problem 17-18

1. Beginning balance
Acquisition (150,000 / 750,000 x 1,250,000)
250,000
Total cost of land

875,000
1,125,000

Technically, the land for undetermined use is an investment property.
2. Old (7,500,000 – 1,644,500 x 8%)
468,440
New (600,000/750,000 x 1,250,000 = 1,000,000 x 8%)
80,000
Depreciation – building

548,440

3. 2,250,000 / 10
400,000 / 10 x 6/12
20,000
Depreciation – machinery

225,000
245,000

4. Depreciation – leasehold improvements (216,000 – 108,000 / 5 years)
21,600
5. Depreciation – land improvements 192,000 / 12 x 9/12)
12,000

Problem 17-19
1. Old building (4,672,200 x 10%)
New building
Direct cost

467,220
2,220,000


Fixed (15,000 x 25)
Variable (15,000 x 27)
Total cost
3,000,000 x 10%
Total depreciation

375,000
405,000
3,000,000
300,000
767,220

Fixed rate (100 / 20 x 2)

10%

232
2. Old machinery (1,380,000 / 10)
New machinery
Invoice cost
Concrete embedding

Wall demolition
Rebuilding of wall
Total cost
400,000 / 10 x 6/12
20,000
Total depreciation

138,000
356,000
18,000
7,000
19,000
400,000
158,000

Problem 17-20 Answer A
Cost of machinery (cash price)
Less: Residual value
Depreciable cost

1,100,000
50,000
1,050,000

Straight line depreciation (1,050,000 / 10)

105,000

Problem 17-21 Answer B
Sales price

Book value:
Cost
Accumulated depreciation (3,600,000 / 5 x 3)
Gain

2,300,000
4,200,000
2,160,000

2,040,000
260,000

Problem 17-22 Answer B
Accumulated depreciation – 12/31/2007
Add: Depreciation for 2008
Total
Less: Accumulated depreciation on property, plant and
equipment retirements (squeeze)
Accumulated depreciation – 12/31/2008

3,700,000
550,000
4,250,000
250,000
4,000,000


Problem 17-23 Answer B
Cost
depreciation

A
550,000
B
200,000
C
40,000
790,000

Salvage
50,000
20,000

Depreciable
cost
500,000
180,000
40,000
720,000

Annual
Life
20
15
5

25,000
12,000
8,000
45,000

Composite life = 720,000 / 45,000

16 years

233
Problem 17-24 Answer D
Invoice price
Cash discount (2% x 4,500,000)
Delivery cost
Installation and testing
Total cost
Salvage value
Depreciable cost

4,500,000
90,000)
80,000
310,000
4,800,000
800,000
4,000,000
(

Rate per unit (4,000,000 / 200,000)
20
Depreciation for 2008 (30,000 x 20)
600,000

Problem 17-25 Answer B
Cost

Accumulated depreciation
2007 (8/36 x 3,600,000)
2008 (7/36 x 3,600,000)
1,500,000
Book value, 12/31/2008

4,000,000
800,000
700,000
2,500,000

Problem 17-26 Answer B
The first three fractions are:
2006
2007
2008

10/55
9/55
8/55

Thus, the 2008 depreciation of P240,000 is equal to 8/55.
Depreciable cost (240,000 / 8/55)
Salvage

1,650,000
50,000