Brief Exercise 11-1
Sheridan Corporation purchased a truck at the beginning of 2017 for $61,500. The truck is
estimated to have a salvage value of $2,460 and a useful life of 196,800 miles. It was
driven 28,290 miles in 2017 and 38,130 miles in 2018.
Compute depreciation expense for 2017 and 2018.
Depreciation expense for 2017
Depreciation expense for 2018
2017: =
2018: =
$
8,487
$
11,439
($61,500 – $2,460) x 28,290
196,800
($61,500 – $2,460) x 38,130
196,800
= $8,487
= $11,439
Brief Exercise 11-2
Bridgeport Company purchased machinery on January 1, 2017, for $98,400. The machinery is
estimated to have a salvage value of $9,840 after a useful life of 8 years.
Compute 2017 depreciation expense using the straight-line method.
Depreciation expense
$98,400 – $9,840
8
$
11,070
= $11,070
Compute 2017 depreciation expense using the straight-line method assuming the machinery was
purchased on September 1, 2017.
Depreciation expense
$98,400 – $9,840
8
$
3,690
x 4/12 = $3,690
Brief Exercise 11-3
Culver Company purchased machinery on January 1, 2017, for $91,200. The machinery is
estimated to have a salvage value of $9,120 after a useful life of 8 years.
Compute 2017 depreciation expense using the sum-of-the-years'-digits method.
Depreciation expense
$
18,240
($91,200 – $9,120 ) x 8/36* = $18,240
*[8(8 + 1)] ÷ 2 = 36
Compute 2017 depreciation expense using the sum-of-the-years'-digits method, assuming the
machinery was purchased on April 1, 2017. (Round answer to 0 decimal places, e.g. 5,125.)
Depreciation expense
$
13,680
[($91,200 – $9,120 ) x 8/36] x 9/12 = $13,680
Brief Exercise 11-4
Coronado Company purchased machinery on January 1, 2017, for $91,200. The machinery is
estimated to have a salvage value of $9,120 after a useful life of 8 years.
Compute 2017 depreciation expense using the double-declining-balance method.
Depreciation expense
$91,200 x 25%*
=
$
22,800
$22,80
0
*(1/8 x 2) = 25%
Compute 2017 depreciation expense using the double-declining-balance method, assuming the
machinery was purchased on October 1, 2017. (Round answer to 0 decimal places, e.g. 5,125.)
Depreciation expense
$
5,700
($91,200 x 25%) x 3/12 = $5,700
Brief Exercise 11-5
Whispering Company purchased a machine on July 1, 2018, for $32,480. Whispering paid
$232 in title fees and county property tax of $145 on the machine. In addition, Whispering paid
$580 shipping charges for delivery, and $551 was paid to a local contractor to build and wire a
platform for the machine on the plant floor. The machine has an estimated useful life of 6 years
with a salvage value of $3,480.
Determine the depreciation base of Whispering’s new machine. Whispering uses straight-line
depreciation.
$
Depreciation base
30,508
Depreciable Base = ($32,480 + $232 + $145 + $580 + $551) – $3,480 = $30,508
Brief Exercise 11-6
Shamrock Inc. owns the following assets.
Asset
Cost
Salvage Estimated Useful Life
A
$71,300
$7,130
10 years
B
52,000
5,200
5 years
C
92,660
4,520
12 years
Compute the composite depreciation rate and the composite life of Shamrock’s assets. (Round
answers to 1 decimal place, e.g. 4.8% or 4.8 years.)
Composite depreciation rate
10.7
%
Composite life
8.6
years
Asset
Depreciation Expense
A
B
C
($71,300 – $7,130)/10 = $ 6,417
($52,000 – $5,200)/5 = 9,360
($92,660 – $4,520)/12 = 7,345
$23,122
Composite rate = $23,122/$215,960 = 10.7%
Composite life = $199,110*/$23,122 = 8.6 years
*($64,170 + $46,800 + $88,140) = $199,110
Brief Exercise 11-7
Marigold Company purchased a computer for $9,200 on January 1, 2016. Straight-line
depreciation is used, based on a 5-year life and a $1,150 salvage value. In 2018, the estimates are
revised. Marigold now feels the computer will be used until December 31, 2019, when it can be
sold for $575.
Compute the 2018 depreciation. (Round answer to 0 decimal places, e.g. 45,892.)
Depreciation expense, 2018
$
2,703
Annual depreciation expense: = ($9,200 – $1,150)/5 = $1,610
Book value, 1/1/18:
= $9,200 – (2 x $1,610) = $5,980
Depreciation expense, 2018: = ($5,980 – $575)/2
= $2,703
Brief Exercise 11-8
Indigo Company owns equipment that cost $909,000 and has accumulated depreciation of
$383,800. The expected future net cash flows from the use of the asset are expected to be
$505,000. The fair value of the equipment is $404,000.
Prepare the journal entry, if any, to record the impairment loss. (If no entry is required, select "No
entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically
indented when amount is entered. Do not indent manually.)d
Account Titles and Explanation
Loss on Impairment
Accumulated Depreciation-Equipment
Debit
Credit
121,200
121,200
Recoverability test:
Future net cash flows ($505,000) < Carrying amount ($525,200); therefore, the asset has been
impaired.
Accumulated Depreciation- Equipment = ($525,200 – $404,000) = $121,200
Brief Exercise 11-9
Whispering Corporation acquires a coal mine at a cost of $476,000. Intangible development costs
total $119,000. After extraction has occurred, Whispering must restore the property (estimated fair
value of the obligation is $95,200), after which it can be sold for $190,400. Whispering estimates
that 4,760 tons of coal can be extracted.
If 833 tons are extracted the first year, prepare the journal entry to record depletion. (If no entry is
required, select "No entry" for the account titles and enter 0 for the amounts. Credit account titles
are automatically indented when amount is entered. Do not indent manually.)
Account Titles and Explanation
Inventory
Debit
Credit
87,465
Coal Mine
87,465
$476,000 + $119,000 + $95,200 – $190,400
4,760
= $105 per ton
833 x $105 = $87,465
Exercise 11-2
Sweet Company acquired a plant asset at the beginning of Year 1. The asset has an estimated service
life of 5 years. An employee has prepared depreciation schedules for this asset using three different
methods to compare the results of using one method with the results of using other methods. You are
to assume that the following schedules have been correctly prepared for this asset using (1) the
straight-line method, (2) the sum-of-the-years'-digits method, and (3) the double-declining-balance
method.
Year
Straight-Line
Sum-of-theYears'-Digits
Double-DecliningBalance
1
$11,160
$18,600
$24,800
2
11,160
14,880
14,880
3
11,160
11,160
8,928
4
11,160
7,440
5,357
5
Total
11,160
3,720
1,835
$55,800
$55,800
$55,800
Answer the following questions.
What is the cost of the asset being depreciated?
1.
Cost of asset
$
62,000
If there is any salvage value and the amount is unknown (as is the case here), the cost would have to
be determined by looking at the data for the double-declining balance method.
100%
5
= 20%; 20% x 2 = 40%
Cost x 40% = $24,800
$24,800 ÷ 0.40 = $62,000 Cost of asset
2.
What amount, if any, was used in the depreciation calculations for the salvage value for this
asset?
Salvage value
$
6,200
$62,000 cost [from (a)] – $55,800 total depreciation = $6,200 salvage value.
3.
Which method will produce the highest charge to income in Year 1?
The method that produces the highest charge to income in
Year 1 is
4.
Double-Declining-Balance Method
Which method will produce the highest charge to income in Year 4?
The method that produces the highest charge to income in
Year 4 is
Straight-line Method
5. Which method will produce the highest book value for the asset at the end of Year 3?
The method that produces the highest book value for the
asset at the end of Year 3 is
Straight-line Method
St.-line
= $62,000 – ($11,160 + $11,160 + $11,160)
= $28,520 book value, end of Year 3.
S.Y.D.
= $62,000 – ($18,600 + $14,880 + $11,160)
= $17,360 book value, end of Year 3.
D.D.B.
= $62,000 – ($24,800 + $14,880 + $8,928)
= $13,392 book value, end of Year 3.
If the asset is sold at the end of Year 3, which method would yield the highest gain (or lowest
loss) on disposal of the asset?
The method that will yield the highest gain (or lowest loss) on
disposal of the asset if the asset is sold at the end of Year 3 is
Double-Declining-Balance Method
6.
The method that will yield the highest gain (or lowest loss) if the asset is sold at the end of Year 3 is
the method which will yield the lowest book value at the end of Year 3, which is the doubledeclining-balance method in this case.
Exercise 11-3
Marin Company purchased a new plant asset on April 1, 2017, at a cost of $753,660. It was estimated
to have a service life of 20 years and a salvage value of $63,600. Marin’s accounting period is the
calendar year.
Compute the depreciation for this asset for 2017 and 2018 using the sum-of-the-years'-digits
method. (Round answers to 0 decimal places, e.g. 45,892.)
Depreciation for 2017
Depreciation for 2018
20 (20 + 1)
2
$
49,290
$
63,256
= 210
3/4 x 20/210 x ($753,660 – $63,600) = $49,290 for 2017
1/4 x 20/210 x ($753,660 – $63,600) = $16,430
+ 3/4 x 19/210 x ($753,660 – $63,600) =
46,826
$63,256 for 2018
Compute the depreciation for this asset for 2017 and 2018 using the double-declining-balance
method. (Round answers to 0 decimal places, e.g. 45,892.)
Depreciation for 2017
Depreciation for 2018
100%
20
$
56,525
$
69,714
= 5%; 5% x 2 = 10%
3/4 x 10% x $753,660
= $56,525 for 2017
10% x ($753,660 – $56,525) = $69,714 for 2018
Exercise 11-4
Sheridan Corp. purchased machinery for $381,150 on May 1, 2017. It is estimated that it will have a
useful life of 10 years, salvage value of $18,150, production of 290,400 units, and working hours
of 25,000. During 2018, Sheridan Corp. uses the machinery for 2,650 hours, and the machinery
produces 30,855 units.
From the information given, compute the depreciation charge for 2018 under each of the following
methods. (Round intermediate calculations to 2 decimal places, e.g. 5.25 and final answers
to 0 decimal places, e.g. 45,892.)
$
(a) Straight-line
36,300
$
(b) Units-of-output
38,569
(c) Working hours
38,478
(d) Sum-of-the-years'-digits
61,600
(e) Declining-balance (use 20% as the annual rate)
66,066
$
(a) $381,150 – $18,150
$
$
= $363,000; $363,000 ÷ 10 yrs.
= $36,300
(b) $363,000 ÷ 290,400 units = $1.25; 30,855 units x $1.25
= $38,569
(c) $363,000 ÷ 25,000 hours = $14.52 per hr.; 2,650 hrs. x $14.52 = $38,478
(d) 10 + 9 + 8 + 7 + 6 + 5 + 4 + 3 + 2 + 1 = 55 OR
10
55
9
55
n(n + 1)
2
=
10(11)
2
= 55
x $363,000 x 1/3 = $22,000
x $363,000 x 2/3 =
Total for 2018
39,600
$61,600
(e) $381,150 x 20% x 1/3
= $25,410
[$381,150 – ($381,150 x 20%)] x 20% x 2/3 =
Total for 2018
40,656
$66,066
[May also be computed as 20% of ($381,150 – 2/3 of 20% of $381,150)]
Exercise 11-5
Coronado Corporation purchased a new machine for its assembly process on August 1, 2017. The cost
of this machine was $120,258. The company estimated that the machine would have a salvage value
of $13,158 at the end of its service life. Its life is estimated at 5 years, and its working hours are
estimated at 22,800 hours. Year-end is December 31.
Compute the depreciation expense under the following methods. Each of the following should be
considered unrelated. (Round depreciation rate per hour to 2 decimal places, e.g. 5.35 for
computational purposes. Round your answers to 0 decimal places, e.g. 45,892.)
(a) Straight-line depreciation for 2017
$
8,925
(b) Activity method for 2017, assuming that machine usage was 830 hours
$
3,901
$
(c) Sum-of-the-years'-digits for 2018
32,725
(d) Double-declining-balance for 2018
40,086
(a) ($120,258 – $13,158)
5
$
= $21,420/yr. = $21,420 x 5/12 = $8,925
2017 Depreciation—Straight line
(b) ($120,258 – $13,158)
22,800
=
$8,925
= $4.70/hr.
2017 Depreciation—Machine Usage = 830 x $4.70 = $3,901
(c)
Allocated to
Machine Year
Total
2017
2018
1
5/15 x $107,100 = $35,700 $14,875* $20,825
**
2
4/15 x $107,100 = $28,560
***
11,900
$14,875 $32,725
* $35,700 x 5/12 = $14,875
** $35,700 x 7/12 = $20,825
*** $28,560 x 5/12 = $11,900
2018 Depreciation—Sum-of-the-Years'-Digits = $32,725
(d) 2017 40% x ($120,258) x 5/12
= $20,043
2018 40% x ($120,258 – $20,043) = $40,086
OR
1st
full year (40% x $120,258)
2nd
= $48,103
full year [40% x ($120,258 – $48,103)] = $28,862
2017 Depreciation = 5/12 x $48,103 = $20,043
2018 Depreciation = 7/12 x $48,103 = $28,060
5/12 x $28,862 =
12,026
$40,086
Exercise 11-16
Presented below is information related to equipment owned by Splish Company at December 31,
2017.
$9,810,000
Cost
Accumulated depreciation to date
1,090,000
Expected future net cash flows
7,630,000
Fair value
5,232,000
Assume that Splish will continue to use this asset in the future. As of December 31, 2017, the
equipment has a remaining useful life of 4 years.
Prepare the journal entry (if any) to record the impairment of the asset at December 31, 2017. (If no
entry is required, select "No entry" for the account titles and enter 0 for the amounts.
Credit account titles are automatically indented when amount is entered. Do not indent
manually.)
Date
Account Titles and Explanation
Dec. 31
Loss on Impair
Debit
Credit
3,488,000
Accumulated D
Cost
3,488,000
$9,810,000
Less: Accumulated depreciation
1,090,000
Carrying amount
8,720,000
Fair value
5,232,000
Loss on impairment
$3,488,000
Prepare the journal entry to record depreciation expense for 2018. (If no entry is required, select
"No entry" for the account titles and enter 0 for the amounts. Credit account titles are
automatically indented when amount is entered. Do not indent manually.)
Account Titles and Explanation
Depreciation E
Debit
Credit
1,308,000
Accumulated D
1,308,000
New carrying amount
$5,232,000
Useful life
÷ 4 years
Depreciation per year
$1,308,000
The fair value of the equipment at December 31, 2018, is $5,559,000. Prepare the journal entry (if
any) necessary to record this increase in fair value. (If no entry is required, select "No entry" for
the account titles and enter 0 for the amounts. Credit account titles are automatically
indented when amount is entered. Do not indent manually.)
Date
Dec. 31
Account Titles and Explanation
No Entry
Debit
0
Credit
No Entry
0