(This Problem Set is from the 6th Edition of Keiso, the other editions may have different figure

value, but the way of solution is same, anyone having different figure just can replace the value, try it, it’s easy.)

P10-1A
Mendoza Company was organized on January 1. During the first year of operations, the following plant asset expenditures and receipts were recorded in random order. Debits 1. 2. Real estate taxes on land paid for the 3. Full to building 4. costs for new 5. Cost of real estate as a plant site (land $100,000 and 6. Cost of parking lots and 7. fees on building 8. 9. Cost of demolishing building to make land suitable for $ 4,000 5,000 700,000 20,000 145,000 14,000 10,000 2,000 of 15,000 $915,000 Credit 10. Proceeds from salvage of demolished building $ 3,500

Instructions Analyze th e foregoing tran s a ctio n s using the following column headings. Insert the number of each transaction in the Item space, and insert the amounts in the appropriate columns. For amounts entered in the Other Accounts column, also indicate the account title. Item Land Building Other Accounts

P10-2A In recent years, Pablo Company purchased three machines. Because o f heavy turnover in the accounting department, a different accountant was in charge of selecting the de- preciation method for each machine, and each selected a different method. Information con- cerning the machines is summarized below. Salvage Value $ 6,000 10,000 8,000 Useful Life Depreciation in Years Method 4 Straight-line 5 Declining-balance 5 Units-of-activity

Machine 1 2 3

Acquired 1/1/00 1/1/00 1/1/01

Cost $86,000 140,000 80,000

For the declining-balance method, the company uses the double-declining rate. For the units-ofactivity method, total machine hours are expected to be 120,000. Actual hours of use in the first 3 years were: 2001, 24,000; 2002, 34,000; and 2003, 30,000. Instructions (a) Compute the amount of accumulated depreciation on each machine at December 31, 2002.

(b) If machine 2 had been purchased on May 1 instead of January 1, what would be the depreciation expense for this machine in (1) 2000 and (2) 2001? P10-3A On January 1, 2002, Khan Company purchased the following two machines for use in its production process. Machine A: The cash price of this machine w a s $30,000. Related expenditures included: sales tax $1,500, shipping costs $150, insurance during shipping $80, installation and testing costs $70, and $100 of oil and lubricants to be used with the machinery during its first year of operation. Khan estimates that the useful life of the ma- chine is 4 years with a $5,000 salvage value remaining at the end of that time period. Machine B: The recorded cost of this machine was $60,000. Khan estimates that the useful life of the machine is 4 years with a $10,000 salvage value remaining at the end of that time period. Instructions (a) Prepare the following for Machine A. (1) The journal entry to record its purchase on January 1, 2002. (2) The journal entry to record annual depreciation at December 31, 2002, assuming the straight-line method of depreciation is used. (b) Calculate the amount of depreciation expense that Khan should record for machine B each year of its useful life under the following assumption. (1) Khan uses the straight-line method of depreciation. (2) Khan uses the declining-balance method. The rate used is twice the straight-line rate. (3) Khan uses the units-of-activity method and estimates the useful life of the machine is 1 25,000 units. Actual usage is as follows: 2002, 45,000 units; 2003, 35,000 units; 2004, 25,000 units; 2005,20,000 units. (c) Which method used to calculate depreciation on machine B reports the lowest amount of depreciation expense in year 1 (2002)? The lowest amount in year 4 (2005)? The lowest total amount over the 4-year period? P10-4A At the beginning of 2006, Duncan Company acquired equipment costing $60,000. It was estimated that this equipment would have a useful life of 6 years and a residual value of $6,000 at that time. The straight-line method of depreciation was considered the most appropriate to use with this type of equipment. Depreciation is to be recorded at the end of each year. During 2002 (the third year of the equipment’s life), the company’s engineers reconsidered their expectations, and estimated that the equipment’s useful life would probably be 7 years (in total) instead of 6 years. The estimated residual value was not changed at that time. However, during 2005 the estimated residual value was reduced to $4,400. Instructions Indicate how much depreciation expense should be recorded for this equipment each year by completing the following table. Year 2000 Depreciation Expense Accumulated Depreciation

2001 2002 2003 2004 2005 2006 P10-5A At December 31, 2002, Santa Fe Company reported the following as plant assets. Land Buildings Less: Accumulated depreciation— b ildi Equipment Less: Accumulated depreciation— i t Total plant assets April 1 Purchased land for $2,630,000. May 1 Sold Equipment that cost $570,000 when purchased on January 1, 1999. The equipment was sold for $240,000. June 1 Sold land purchased on June 1, 1999, for $1,000,000. The land cost $340,000. July 1 Purchased equipment for $3,500,000. Dec. 31 Retired equipment that cost $500,000 when purchased on December 31, 1993. No salvage value was received. $ 4,000,000 16,400,0 00 43,000,0 00 $63,400,0

$28,500,000 12,100,000 48,000,000 5,000,000

During 2003, the following selected cash transactions occurred.

Instructions (a) Journalize the above transactions. Starkey uses straight-line depreciation for buildings and equipment. The buildings are estimated to have a 50-year useful life and no salvage value. The equipment is estimated to have a 10-year useful life and no salvage value. Update depreciation on assets disposed of at the time of sale or retirement. (b) Record adjusting entries for depreciation for 2003. (c) Prepare the plant assets section of Santa Fe’s balance sheet at December 31, 2003.

Problem Set 10 - 1A

Item 1 2 3 4 5 6 7 8 9 10

Land ($ 4,000)

Building $700,000 $ 5,000

Other Accounts

Property Taxes Expense

( 145,000)

20,000 10,000 14,000 Land Improvements

( (

2,000)

15,000) (3,500) ($162,500)

$730,000

Problem Set 10 - 2A

(a) Year
2000 2001 2002 $ $ $

Computation
BUS 1 0,000 X 2 % = $ 0,000 X 2 % = $ 0,000 X 2 % = $ BUS 2 ,000 ,000 ,000

Cumulative 12/31

$

,000 ,000 ,000

2000 2001 2002

$1 0,000 X 0% = $ ,000 $ ,000 X 0% = $3 , 00 $ , 00 X 0% = $1 , 0 BUS 3 24,000 miles X $.60* = $14,400 34,000 miles X $.60* = $20,400

$

,000 , 00 10 , 0

2001 2002

$ 14,400 34,800

*$72,000 ÷ 120,000 miles = $.60 per mile. (b) ear Computation BUS 2 $1 0,000 X 0% X 9/12 = $ Expense

(1) (2)

2006 2007

,000

$

,000

$

,000 X 0% = $3 , 00

$3 , 00

Problem Set 10-3A
(a) (1) P. R. Dr. Dr. Dr. Dr. Dr. Cr. Dr. Cr. Debit (Amount) 30000 1500 150 80 70 31800 Credit (Amount) 31800 31800

Date 2002 Jan 1

Particulars Purchase Price A/c Sales Tax A/c Shipping Costs A/c Insurance During Shipping A/c Installation and Testing A/c Total Cost of Machinery A/c Machinery A/c Cash A/c

2002 Jan 1

(a) (2) P. R. Dr. Cr. Debit (Amount) 5360 Credit (Amount) 5360

Date 2002 Dec 31

Particulars Depreciation Expense A/c Accumulate Depreciation A/c

Working: Calculation of Annual Depreciation: Recorded Cost Less: Salvage Value Depreciable Cost (÷) Years of Useful Life Annual Depreciation 31800 5000 26800 ÷ 5 5360

(b) (1)

Date 2002 Dec 31

Particulars Depreciation Expense A/c Accumulate Depreciation A/c Dr. Cr.

P. R.

Debit (Amount) 13750 -

Credit (Amount) 13750

Working: Calculation of Annual Depreciation: Recorded Cost Less: Salvage Value Depreciable Cost (÷) Years of Useful Life Annual Depreciation 60000 5000 55000 ÷ 4 13750

(b) (2) Book Value at Beginning Double Declining Annual Depreciation of Year Balance Rate Expense 55000 50%* 27500 27500 50% 13750 13750 50% 6875 6875 50% 3438 *100% ÷ 4-year useful life = 25% X 2 = 50%. Accumulated Depreciation 27500 41250 48125 51563

(b) (3) 2002: $1.20 X 45,000 2003: 1.20 X 35,000 2004: 1.20 X 25,000 2005: 1.20 X 20,000 = $54,000 = 42,000 = 30,000 = 24,000

(c) The declining-balance method reports the highest amount of depreciation expense the first year while the straight-line method reports the lowest. In the fourth year, the straight-line method reports the highest amount of depreciation expense while the declining-balance method reports the lowest. These facts occur because the declining-balance method is an accelerated depreciation method in which the largest amount of depreciation is recognized in the early years of the asset’s life. If the straight-line method is used, the same amount of depreciation expense is recognized each year. Therefore, in the early years less depreciation expense will be recognized under this method than under the declining-balance method while more will be recognized in the later years. The amount of depreciation expense recognized using the units-of-activity method is dependent on production, so this method could recognize more or less depreciation expense than the other two methods in any year depending on output. No matter which of the three methods is used, the same total amount of depreciation expense will be recognized over the four-year period.

Problem Set 10-4A
Year 2000 2001 2002 2003 2004 2005 2006 Depreciation Expenses 9000* 9000 7200** 7200 7200 8000*** 8000 Accumulated Depreciation 9000 18000 25200 32400 39600 47600 55600

Annual Depreciation =

Book Value - Salvage Value Remaining Useful Life

*
60000 - 6000 6 years = 9000

**
42000 - 6000 5 years = 7200

***
20400 - 4400 2 years = 8000

Problem Set 10-5A
(a) P. R. Dr. Dr. Dr. Cr. Dr. Dr. Cr. Cr. Dr. Cr. Cr. Dr. Cr. Dr. Cr. Debit (Amount) 2630000 19000 350000 247000 1800000 2000000 500000 Credit (Amount) 2630000 19000 570000 27000 200000 1600000 2000000 500000

Date 2003 April 1 2003 May 1 2003 May 1

Particulars Land A/c Cash A/c Depreciation Expense A/c Accumulated Depreciation- Equipment A/c Cash A/c Accumulated Depreciation- Equipment A/c Equipment Gain on Disposal* Cash A/c Land A/c Gain on Disposal Equipment A/c Cash A/c Accumulated Depreciation- Equipment A/c Equipment A/c

2003 June 1 2003 July 1 2003 May 1

*Calculation of Gain on Disposal of Equipment sold at May 1, 2003 Cost Accum. depreciation—equipment [($780,000 X 1/10 X 4) +$27,000] Book value Cash proceeds Gain on disposal $323,000 $ 350,000 $ 27,000 $570,000 $247,000

(b) P. R. Dr. Dr. Dr. Cr. Debit (Amount) 570000 4793000 Credit (Amount) 570000 4793000

Date 2002 Dec 31 2002 Dec 31

Particulars Depreciation Expense A/c Accumulated Depreciation- Building A/c ($28,500,000 X 1/50) Depreciation Expense A/c* Accumulated Depreciation- Equipment A/c

*Calculation of depreciation expense of Equipment: ($46,930,000* X 1/10) [($2,000,000 X 1/10) X 6/12] $4,693,000 *($48,000,000 – $570,000 – $500,000) $4,693,000 100,000

(c) Santa Fe Company Partial Balance Sheet December 31, 2003 Particulars Land Buildings Less: Accumulated depreciation- Buildings Equipment Less: Accumulated depreciation-Equipment Total plant assets $28,500,000 12,670,000 48,930,000 9,115,000 Amounts $ Amounts $ $6,430,000 15,830,000 39,815,000 $62,075,000

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