TUTORIAL: NON-CURRENT ASSETS

1. Ramirez Company installs a computerized manufacturing machine in its factory at the

beginning of the year at a cost of $43,500. The machine’s useful life is estimated at 10 years,
or 385,000 units of product, with a $5,000 salvage value. During its second year, the
machine produces 32,500 units of product.

a) Determine the machine’s second-year depreciation and year end book value under the
straight-line method, and provide the appropriate journal entry.
b) Determine the machine’s second-year depreciation using the units-of-production method,
and provide the appropriate journal entry.
c) Determine the machine’s second-year depreciation using the double-declining-balance
method, and provide the appropriate journal entry.

a) Second-year end depreciation: Straight-line : (43500-5000)/ 10 = 3850

Year-end book value: 43500-3850-3850= 35800
b) Units-of-production method : (43500-5000/385000)*32500= 3250
Deprecition expense (dt) 3250 Accumulated depreciation (ct)3250
c) Double-declining-balance method :
Depreciation : (1/useful life)*2 = (1/10)*2= 0.2 *100 = 20%
First year depreciation: 43500 * 20% =8700
Second year depreciation : 34800*20% =6960

2. On January 1, the Matthews Band pays $65,800 for sound equipment. The band estimates it
will use this equipment for four years and after four years it can sell the equipment for
$2,000. Matthews Band uses straight-line depreciation but realizes at the start of the second
year that this equipment will last only a total of three years. The salvage value is not
changed.
Compute the revised depreciation for both the second and third years.

Annual Depreciation = ( cost price- salvage value) / useful life

= (65800-2000)/4 = 15950

Book value at the point of revision = Cost price - Depreciation for year 1 = 65800-15950
=49850

Remaining depreciation cost = 49850-2000 = 47850

Depreciation for second and third year = 47850/2 = 23925

3. Perez Company acquires an ore mine at a cost of $1,400,000. It incurs additional costs of
$400,000 to access the mine, which is estimated to hold 1,000,000 tons of ore. 180,000 tons
of ore are mined and sold the first year. The estimated value of the land after the ore is
removed is $200,000. Calculate the depletion expense from the information given.
Prepare the entry to record the cost of the ore mine and year-end adjusting entry.

Cost = 1400000+400000 1800000

Salvage value 200000
Depletion expense(cost-salvage value ) 1600000
Totals unit of capacity 1000000tons
Depletion per unit (1,600,000/1000000) $1.60 per unit
Units extracted and sold in period 180000 tons
Depletion expense (1.60* 180000) $288000

Date accounts & explanation debit credit

Ore Mine 1,800,000

4.     Cash 1,800,000 Classify

the (Cost of Ore Mine with Additional Cost to access the Mine) following

Depletion expense $288,000

    Accumulated depletion $288,000

(Depletion expense as calculated Above)

transactions as either a revenue expenditure or a capital expenditure, and prepare the

appropriate journal entry.

a. Paid $42,000 cash to replace a motor on equipment that extends its useful life by four
years.

Capital expenditure Equipment 42000(dt) , Cash 42000(ct)

b. Paid $210 cash per truck for the cost of their annual tune-ups.

Revenue expenditure Cash ct 210 Repair and maintainance dt 210

c. Paid $168 for the monthly cost of replacement filters on an air-conditioning system.

Revenue expenditure Repair and maintainece expense DT 168 Cash ct 168

d. Completed an addition to a building for $236,250 cash.

Capital Expenditure Building 236250 (DT) Cash 236250 (ct)

  

5. Garcia Company owns equipment that cost $76,800, with accumulated depreciation of
$40,800.

Record the sale of the equipment under the following three separate cases assuming Garcia
sells the equipment for (1) $47,000 cash, (2) $36,000 cash, and (3) $31,000 cash.

Cash 47000(dt)
Accumulated depreciation 40800(dt)
Equipment 76800(ct)
Gain on disposal 11000(ct)

Carrying amount equipment = cost- accum dep

= 76800-40800 = 36000