FACULTY OF MANAGEMENT AND SOCIAL SCIENCES
PRINCIPLES OF FINANCIAL ACCOUNTING II (ACTG1054)
ASSIGNMENT # 1 - CHP 10: FIXED AND INTANGIBLE ASSETS
66% (D+)
NAME: Breann Coleman
DATE UPLOADED: 16/9/2020
DUE DATE: 19/9/2020 BY MIDNIGHT
Please do your work on this paper and submit your Word document on Moodle. Please show your
calculations.
THIS WORK TOTALS 45 PTS. PLEASE ATTEMPT ALL QUESTIONS BUT ENSURE TO PROVIDE
ANSWERS FOR ONLY WHAT IS ASKED.
UNDERLINE FINAL ANSWERS TWICE.
1. Assume that on September 30, 2010 American Airlines (AA) purchased a Boeing
aircraft at a cost of $20,000,000. AA expects the plane to remain useful for ten years
or fly a total of 4,000,000 miles and to have a residual value of $5,000,000. AA flew
the plane for 410,000 miles during the remainder of 2010.
Calculate AA’s
depreciation expense on the plane for the accounting period ended December 31,
2010, using:
a. Units of activity method (2 pts) Round the depreciation rate to 2 decimal place.
b. Double declining balance method (2 pts)
a.
b.
Depreciation per unit
= (cost-residual value)/useful life of units
=
(20,000,000-5,000,000)/4,000,000
3.75
Units of Production
= Depreciation per unit x Current year usage
3.75 per mile x 410,000 miles
$
1,537,500.00
Double-declining balance method
= (cost-accumulated depreciation)x2x(1/useful life)
(20,000,000-0)x2x(1/10 years)
one year
$
4,000,000.00
Jan-Aug ($4mil/12 months) x 8 months
$
2,666,666.67
Sept-December 2010
$
1,333,333.33
-2
2. Belmopan City Council (BCC) paid $100,000 for a building at the beginning of the
year. BCC started out depreciating the building using straight line depreciation over
10 years with a zero residual value. After using the building for three years, BCC
determines that the building remaining useful life is six years and the new residual
value is $16,000.
(a) Determine the book value at the end of the 3rd year of use.
(2 pts)
(b) Journalize the depreciation expense for the building at Dec 31 year 4
(5 pts)
Straight line depreciation
year
1
2
3
4
5
6
7
8
9
10
Date
Year 4, Dec 31
Year 4, Dec 31
Book Value Year start
$
100,000.00
$
90,000.00
$
80,000.00
$
70,000.00
$
61,000.00
$
52,000.00
$
43,000.00
$
34,000.00
$
25,000.00
$
16,000.00
(cost-residual value)/years
(100,000-0)/10
$
10,000.00
(70,000-16,000)/6
$ 9,000.00
Depreciation
Book value
expense
year end
$
10,000.00 $ 90,000.00
$
10,000.00 $ 80,000.00
$
10,000.00 $ 70,000.00
$
9,000.00 $ 61,000.00
$
9,000.00 $ 52,000.00
$
9,000.00 $ 43,000.00
$
9,000.00 $ 34,000.00
$
9,000.00 $ 25,000.00
$
9,000.00 $ 16,000.00
$
9,000.00 $ 7,000.00
Transaction
Debit
Depreciation Expense
$
Accumulated Depreciation
Credit
9,000.00
$
9,000.00
3. A machine was purchased on August 29, 2010 at a cost of $25,000. The machine
has a useful life of 8 years and a residual value of $4,000. The straight line
depreciation method is used. Journalize the entries for the disposal of the
machine on Jan 1 2016, under the following INDEPENDENT scenarios:
a. The machine was sold for $13,000. (9 pts)
b. The machine is obsolete (outdated) and was thrown in the trash. (6 pts)
Straight line depreciation
$
year Book Value Year start
2010 $
2011 $
2012 $
2013 $
2014 $
2015 $
2016 $
2017 $
2018 $
25,000
24,016
21,391
18,766
16,141
13,516
10,891
8,266
5,641
Selling price
book value
Gain
2016 Cash
Accumulated depreciation
Machinery
Gain on sales of equipment
-3.5
(cost-residual value)/years
(25,000-4,000)/8
2,625.00
Depreciation
expense
$
984
$
2,625
$
2,625
$
2,625
$
2,625
$
2,625
$
2,625
$
2,625
$
1,641
Accuulated
depreciation
$
984
$
3,609
$
6,234
$
8,859
$
11,484
$
14,109
$
16,734
$
19,359
$
21,000
$ 13,000.00
10781.25 (25,000-14109)
$ 2,218.75
$ 13,000.00
$ 14,109.00
$ 10,891.00
$ 16,218.00
Book value
year end
$ 24,016
$ 21,391
$ 18,766
$ 16,141
$ 13,516
$ 10,891
$
8,266
$
5,641
$
4,000
2016 Inventory Obsolence-machinery
Allowance for obsolete inventory- machinery
$ 10,891.00
$ 10,891.00
-6
4. a. In February 2018, BNE Co. Ltd paid $500,000 for an oil lease that contains an
estimated 80,000 barrels of oil. 22,500 barrels are extracted in 2018.
b. Bill Gates acquired a patent for his Microsoft software on March 2, 2018 for
$85,000. The patent is expected to be of benefit to Gates for 20 years.
c. In April 2018, UB is reacquiring Galen University at a cost of $400,000. At the
time of this acquisition, Galen had assets of $650,000 and liabilities of $300,000. At
December 31, 2018, goodwill was revalued at $35,000.
a. Journalize the depletion expense at December 31, 2018. (5 pts)
b. Journalize the amortization expense at Dec 31, 2018 and 2019. (10 pts)
c. Journalize the impairment to goodwill at December 31, 2018. (4 pts)
A.
Depletion Rate
=
Cost of Resource
Estimate Total Units of Resource
Depletion Expense
=
Depletion rate x Quantity removed
500000
80000 =
6.25
=6.25 x 22,500
$
2018 Dec
140,625.00
31 Depletion expense
Accumulated depletion
$ 140,625.00
$ 140,625.00
B.
Date
March 2,2018
Date
Dec 31,2018
Date
Dec 31,2019
Account Name
Patent
Cash
Debit
$ 85,000.00
Account Name
Amortization Expense -Patents
Patents -2
(85,000/20years)
4250
Account Name
Amortization Expense -Patents
Patents
(85,000/20years)
Debit
$ 4,250.00
Credit
$ 85,000.00
Credit
$
Debit
$ 4,250.00
4,250.00
Credit
$
4,250.00
C.
Purchase price
Fair Value (FV) of assets
FV of liabilities
$ 400,000.00
$ 650,000.00
$ 300,000.00
FV of net assets
$ 350,000.00
Value assigned to goodwill
$
Date
Apr-18
Date
Dec 31 -18
50,000.00
Account Name
Assets
Liabilities
Goodwill
Cash
Debit
$ 650,000.00
Account Name
Loss from impaired Goodwill
Goodwill
-2
Debit
$ 35,000.00
Credit
$ 300,000.00
$ 50,000.00
$ 400,000.00
Credit
$
35,000.00