FINANCIAL ACCOUNTING 2
C H A P T E R 10
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PLANT ASSETS,
NATURAL RESOURCES,
AND INTANGIBLES
Financial Accounting I
ACC113
Ex10-6: Feng Company installs a computerized manufacturing machine in
its factory at the beginning of the year at a cost of $42,300. The machine’s
useful life is estimated at 10 years, or 363,000 units of product, with a $6,000
salvage value. During its second year, the machine produces 35,000 units of
product. Determine the machine’s second-year depreciation under the
straight-line method.
Date
Debit
Credit
Ex10-7: Refer to the information in Exercise 10-6. Determine the machine’s
second-year depreciation using the units-of-production method.
Date
Debit
Credit
1
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Financial Accounting I
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Ex 10-8: Refer to the information in Exercise 10-6. Determine the machine’s
second-year depreciation using the double-declining-balance method.
Date
Debit
Credit
Ex 10-9: On April 1, 2010, Stone’s Backhoe Co. purchases a trencher for
$250,000. The machine is expected to last five years and have a salvage
value of $25,000. Compute depreciation expense for both 2010 and 2011
assuming the company uses the straight-line method.
Date
Debit
Credit
2
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Financial Accounting I
ACC113
Ex 10-10: Refer to the information in Exercise 10-9. Compute depreciation
expense for both 2010 and 2011 assuming the company uses the doubledeclining-balance method.
Date
Debit
Credit
Ex10 -11: Supreme Fitness Club uses straight-line depreciation for a
machine costing $21,750, with an estimated four-year life and a $2,250
salvage value. At the beginning of the third year, Supreme determines that
the machine has three more years of remaining useful life, after which it will
have an estimated $1,800 salvage value.
Compute: (1) the machine’s book value at the end of its second year and
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Financial Accounting I
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(2) The amount of depreciation for each of the final three years given the
revised estimates.
10- 14 Passat Company owns a building that appears on its prior year-end
balance sheet at its original $561,000cost less $420,750 accumulated
depreciation. The building is depreciated on a straight-line basis assuming a
20-year life and no salvage value. During the first week in January of the
current calendar year, major structural repairs are completed on the
building at a $67,200 cost. The repairs extend its useful life for7 years
beyond the 20 years originally estimated.
1. Determine the building’s age (plant asset age) as of the prior year-end
balance sheet date.
2. Prepare the entry to record the cost of the structural repairs that are
paid in cash.
Date
Debit
Credit
4
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Financial Accounting I
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3. Determine the book value of the building immediately after the repairs
are recorded.
4. Prepare the entry to record the current calendar year’s depreciation.
Date
Debit
Credit
5
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Financial Accounting I
ACC113
Ex10 -17: Finesse Co. purchases and installs a machine on January 1, 2011, at
a total cost of $92,750. Straight-line depreciation is taken each year for four
years assuming a seven-year life and no salvage value. The machine is
disposed of on July 1, 2015, during its fifth year of service. Prepare entries to
record the partial year’s depreciation on July 1, 2015, and to record the
disposal under the following separate assumptions:
( 1) the machine is sold for $35,000 cash and
Date
Debit
Credit
(2) Finesse receives an insurance settlement of $30,000 resulting from the
total destruction of the machine in a fire.
Date
Debit
Credit
6
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Financial Accounting I
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EX10 -18: On April 2, 2011, Idaho Mining Co. pays $3,633,750 for an ore
deposit containing 1,425,000 tons. The company installs machinery in the
mine costing $171,000, with an estimated seven-year life and no salvage
value. The machinery will be abandoned when the ore is completely mined.
Idaho begins mining on May 1, 2011, and mines and sells 156,200 tons of ore
during the remaining eight months of 2011.
Required: Prepare the December 31, 2011, entries to record both the ore
deposit depletion and the mining machinery depreciation. Mining
machinery depreciation should be in proportion to the mine’s depletion.
Date
Debit
Credit
7
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Financial Accounting I
ACC113
EX10 -19: Busch Gallery purchases the copyright on an oil painting for
$236,700 on January 1, 2011. The copyright legally protects its owner for 12
more years. The company plans to market and sell prints of the original for
15 years.
Required: Prepare entries to record the purchase of the copyright on
January 1, 2011, and its annual amortization on December 31, 2011.
Date
Debit
Credit
8
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Financial Accounting I
ACC113
Answer of Ex. 10 - 6 :
• Depreciation expense =
( For the second year )
42300 – 6000
10
= $ 3630
Date
Dec, 31
Debit
Depreciation expense
Credit
3630
Accumulated Depreciation
3630
Answer of Ex. 10 - 7 :
• Depreciation per unit =
42300 – 6000
363000
= 0.10 per unit
• Depreciation expense = 0.10 × 35000 = $ 3500
( For the second year )
Date
Dec, 31
Debit
Depreciation expense
Accumulated Depreciation
Credit
3500
3500
Answer of Ex. 10 – 8 :
• Straight line rate = 100
= 10%
10
• Double declining line rate = 10% × 2 = 20%
• Depreciation expense = 42300 × 20% = $ 8460
( At the 1st year )
9
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Financial Accounting I
ACC113
• Book value = 42300 − 8460 = $ 33840
( At the end of the 1st year )
• Depreciation expense = 33840 × 20% = $ 6763
( At the 2nd year )
Date
Dec, 31
Debit
Depreciation expense
Credit
6763
Accumulated Depreciation
6763
Answer of Ex. 10 – 9 :
• Depreciation expense =
( For 2010 )
250000 - 25000
5
×
250000 - 25000
5
= $ 45000
• Depreciation expense =
( For 2011 )
Date
Dec, 31
2010
9
12
= $ 33750
Debit
Depreciation expense
33750
Accumulated Depreciation
Dec, 31
2010
Depreciation expense
Accumulated Depreciation
Credit
33750
45000
45000
Answer of Ex. 10 – 10 :
• Straight line rate =
100
5
= 20%
• Double declining rate = 2 × 20% = 40%
10
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Financial Accounting I
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9
• Depreciation expense = 250000 × 40% × ‫ــــــ‬
= $ 75000
12
( For 2010 )
• Book value = 250000 − 75000 = $ 175000
( At the end of 2010 )
• Depreciation expense = 175000 × 40% = 70000
( For 2011 )
Date
Dec, 31
2010
Debit
Depreciation expense
75000
Accumulated Depreciation
Dec, 31
2010
Credit
75000
Depreciation expense
70000
Accumulated Depreciation
70000
Answer of Ex. 10 – 11 :
- Requirement No. 1 :
• Depreciation expense =
( For the
1st
year )
21750 − 2250
4
= $ 4875
• Accumulated depreciation = 4875 + 4875 = $ 9750
( For the 1st + 2nd year )
• Book value = 21750 – 9750 = $ 12000
( At the end of the 2nd year )
-
Requirement No. 2 :
• Depreciation expense =
( For the
3rd
year)
12000 − 18000
3
= $ 3400
11
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Financial Accounting I
ACC113
Date
Dec, 31
Debit
Depreciation expense
Credit
3400
Accumulated Depreciation
3400
Answer of Ex. 10 – 14 :
- Requirement No. 1 :
• Depreciation expense =
• Plant Asset age =
561000 − 0
20
= $ 28050
Accumulated depreciation
Depreciation expense
=
420750
28050
= 15 years.
- Requirement No. 2 :
Date
Jan
Debit
Building
Credit
67200
Cash
67200
- Requirement No. 3 :
• Book value = 561000 + 67200 = $ 628200
•
- Requirement No. 4 :
• The revised depreciation expense = 207450 − 0
= $ 17287.5
The revised useful life =
( 20 + 7 ) – 15 = 12
12
12
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Financial Accounting I
ACC113
Date
Dec, 31
Debit
17287.5
Depreciation expense
Accumulated Depreciation
Credit
17287.5
Answer of Ex. 10 – 17 :
- Requirement No. 1 with assumption of sold for $ 35000 :
• Update depreciation expense =
92750 − 0
7
= $ 13250
1- ( For 1 year, the whole 2015 )
6
2- ( For 6 month, from the beginning of 2015 till July,1st ) = 13250 ×
12
= $ 6625
Date
July, 1
2015
Depreciation expense
Debit
6625
Accumulated Depreciation
Credit
6625
• Accumulated depreciation =
1- ( For period 2011 – 2014 “ 4 years ” ) = 4 × 13250 = $ 53000
2- ( For 6 months ) = $ 6625
Total Acc. Dep. = 53000 + 6625 = $ 59625
Date
July, 1
2015
Debit
Cash
35000
Accumulated Depreciation
59625
Credit
Machinery
92750
Gain on sale machinery
1875
13
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Financial Accounting I
ACC113
• How to calculate the Gain on sale the machinery ?
Gain = Selling price – Book value
= 35000 – ( Cost of the asset – Accumulated depreciation )
= 35000 – ( 92750 – 59625 )
= $ 1875
- Requirement No. 2 with assumption of receives an insurance
settlement of $30,000:
Date
July, 1
2015
Debit
Cash
35000
Accumulated Depreciation
59625
Loss from fire
3125
Machinery
Credit
92750
• How to calculate the Loss from fire ?
Loss = Book value – Selling price
= ( Cost of the asset – Accumulated depreciation ) – 30000
= ( 92750 – 59625 ) – 30000
= $ 3125
14
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Financial Accounting I
ACC113
Answer of Ex. 10 – 18 :
- Requirement No. 1 :
• To record the depletion expense we use “ Unit Of Production Method ” :
• Depletion expense per unit =
3,366,750 – 0
1,425,000
= 2.55
Type equation
here.
• Depletion expense = 2.55 × 156200
= $ 398310
Date
Dec, 31
2011
Debit
Depletion expense
Credit
398310
Accumulated depletion
398310
- Requirement No. 2 :
• Record of depreciation expense on Machinery that we used in discarding the
Natural Assets, also we use “ Unit Of Production Method ” :
• Depreciation expense per unit =
171000 – 0
1,425,000
= 0.12
• Depreciation expense = 0.12 × 156200
= $ 18744
Type equation
here.
Date
Dec, 31
2011
Debit
Depreciation expense
Accumulated Depreciation
Credit
18744
18744
15
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Financial Accounting I
ACC113
Answer of Ex. 10 – 19 :
• Amortization expense =
236700 - 0
12
= $ 19725
Date
Jan, 1
2011
Debit
Copyright
236700
Cash
Dec, 31
Credit
236700
Amortization expense
Accumulated Amortization
19725
19725
16
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