CHAPTER 7

LONG-LIVED NONMONETARY ASSETS AND THEIR

AMORTIZATION
Problems
Problem 7-1
With units-of-production depreciation, one finds the cost of one production unit, and then multiplies this by
the units used in a year to determine the years depreciation:
Cost of one unit =

$300,000 - $18,000
= $.08
3,525,000

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Years
1
2
3
4
5
6

Units
930,000
800,000
580,000
500,000
415,000
300,000
3,525,000

x
x
x
x
x
x
x

$.08
$.08
.08
.08
.08
.08
.08

=
=
=
=
=
=
=

Units of
Production
Depreciation
$ 74,400
64,000
46,400
40,000
33,200
24,000
$282,000

SYD
Charge
$80,571
67,143
53,714
40,286
26,857
13,429
282,000

(6/21 x $282,000)
(5/21 x 282,000)
(4/21 x 282,000)
(3/21 x 282,000)
(2/21 x 282,000)
(1/21 x 282,000)

Problem 7-2
Equipment ID #103

Dr. Cash.............................................................................................................................................................................
14,300
Accumulated Depreciation.............................................................................................................................................
59,755*
Cr. Equipment..........................................................................................................................................................
70,300
Gain on Sale of Equipment..................................................................................................................................
3,755
*(70,300 / 10) x 8 years = $59,755

Equipment ID #415

Dr. Cash.............................................................................................................................................................................
63,000
Accumulated Deprecation..............................................................................................................................................
26,640*
Loss on Sale of Equipment............................................................................................................................................
6,360
Cr. Equipment..........................................................................................................................................................
96,000
*Year 1, ($96,000 x 30%)( year) = $14,400;
Year 2, ($81,600 x 30%)( year) = 12,240.

Equipment ID #573

Dr. Cash.............................................................................................................................................................................
38,000
Accumulated Depreciation.............................................................................................................................................
49,500*
Loss on Sale of Equipment............................................................................................................................................
7,000
Cr. Equipment..........................................................................................................................................................
94,500
*$94,500 x 11/21 = $49,500

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Problem 7-3

Automobile (new).....................................................................................................................................................................
9,900
Accumulated Depreciation (old)...............................................................................................................................................
14,500
Automobile (old)................................................................................................................................................................
16,000
Cash...................................................................................................................................................................................
8,400
(No gain or loss was involved, because the two assets were of like kind.)

Furniture...................................................................................................................................................................................
8,850
Accumulated Depreciation........................................................................................................................................................
13,610
Loss on Disposal of Truck........................................................................................................................................................
750
Truck.................................................................................................................................................................................
19,860
Cash...................................................................................................................................................................................
3,350
Problem 7-4

(1) Land................................................................................................................................................................................
80,600
Cash..........................................................................................................................................................................
80,600

(2) Building..........................................................................................................................................................................
138,000
Common Stock..........................................................................................................................................................
90,000
Notes Payable...........................................................................................................................................................
16,000
Cash..........................................................................................................................................................................
32,000

(3) Desks and Chairs (80% x $8,700)...................................................................................................................................

6,960
Bookcases (80% x $2,200)..............................................................................................................................................
1,760
Filing Cabinets (80% x $1,100)......................................................................................................................................
880
Cash..........................................................................................................................................................................
9,600
The above does not treat the equipment purchase as a fortunate acquisition. An argument can be made to
record the equipment as a fortunate acquisition, giving rise to this entry instead:

Desks and Chairs............................................................................................................................................................

8,700
Bookcases.......................................................................................................................................................................
2,200
Filing Cabinets................................................................................................................................................................
1,100
Cash..........................................................................................................................................................................
9,600
Retained Earnings.....................................................................................................................................................
2,400
Problem 7-5

Depletable Assets
Land.........................................................................................................................................................................................
$ 21,700,000
Tests successful ....................................................................................................................................................................
35,250
Tests unsuccessful.................................................................................................................................................................
116,250
Permits.....................................................................................................................................................................................
41,000
$ 21,892,500
Salvage value............................................................................................................................................................................
(2,325,000)
Net Cost...................................................................................................................................................................................
$19,567,500)
Unit depletion = $19,567,500 / 800,000 tons = $24.46/ton.
Depreciation year 1 = $24.46 x 30,000 tons = $733,800

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Depreciation year 2 = $24.46 x 70,000 tons = $1,712,200

Depreciation year 3 = $24.46 x 75,000 tons = $1,834,500
Land Improvements
$387,500 / 10 years = $38,750 / year amortization.
Amortization year 1 = $38,750
Amortization year 2 = 38,750
Amortization year 3 = 38,750
Buildings
$271,250 / 10 years = $27,125/year depreciation
Deprecation year 1 = $27,125
Deprecation year 2 = 27,125
Deprecation year 3 = 27,125
Machinery
Depreciation year 1 = $1,162,500 x 10/55 = $211,364
Depreciation year 2 = $1,162,500 x 9/55 = $190,227
Depreciation year 3 = $1,162,500 x 8/55 = $169,091

130