Exercise 10.

1 (Quynh Tram)

Activities Land Land Building Equipment

Improvement
Architect's fee for building design $74,800

Building 3,200,000

Building permits 28,000

Cost of grading the land $220,000

Cost of land 2,000,000

Cost of land survey 14,800

Cost of tearing down old building 340,000

Costs of tests to prepare $16,800

equipment for use

Electrical wiring for building 64,400

Equipment (computers, tables & 124,000

chairs)

Installation charges for equipment 12,600

Insurance during construction of 12,700

building

Landscaping $68,400

Lawyer’s fee – land acquisition 120,000

Transportation costs for 12,900

equipment

Total $2,684,800 $68,400 $3,379,900 $166,300

Exercise 10.2 (Minh Phuong)

• The net purchase price of the equipment of $608,000 [$640,000 – ($640,000 x 5%)] should be
included in the total cost of Exercise Equipment account. Sales taxes of $36,480 should be
included in the total cost.
• Transportation charges for delivery of the equipment totaling $2,200 should be included in the
total cost.
• Costs for installation and test runs to ready the equipment for customer of $1,600 should be
included in the total cost.
• Normal maintenance costs for the exercise equipment in June 2018 of $875 should not be
included in the total cost of Exercise Equipment account. Therefore, it should be included in
Maintenance Expense account.

Invoice price $640,000

Cash discount ($640,000 x 5%) (32,000)
Net purchase price 608,000
Sales taxes 36,480
Freight 2,200
Installation and test cost 1,600
Equipment cost $648,280
Ex 10.3.1: Thao Linh:

a. Straight-Line Method:
Annual Depreciation Expense = ( Cost - Salvage Value)/ Useful Life
= ($100,000 - $10,000)/4 = $22,500

Year Depreciation Depreciation Annual Accumulated Book

Cost Rate Depreciation Depreciation Value
Expense

2012 $90,000 25% $22,500 $22,500 $77.500

2013 90,000 25 22,500 45,000 55,000

2014 90,000 25 22,500 67,500 32,500

2015 90,000 25 22,500 90,000 10,000

b. Units- of- Production Method:

Depreciable Cost Per Unit = Depreciable Cost / Total Units of Production
= ($100,000 - $10,000) / 45,000 hours
= $2

Year Hours Cost per Annual Accumulated Book

Produced Unit Depreciation Depreciation Value
Expense

2012 10,000 $2 $20,000 $20,000 $80,000

2013 8,000 2 16,000 36,000 64,000

2014 14,000 2 28,000 64,000 36,000

2015 13,000 2 26,000 90,000 10,000

c. Double- Declining Balance:

Annual Depreciation Expense = Book Value at Beginning of Year x

Declining Balance Rate
= $100,000 x ( 25 % x2) = $50,000
Year Book Value Declining Annual Accumulated Book
at Beginning Balance Depreciation Depreciation Value
of Year Rate Expense

2012 $100,000 50% $50,000 $50,000 $50,000

2013 50,000 50 25,000 75,000 25,000

2014 25,000 50 12,500 87,500 12,500

2015 12,500 50 2,500 90,000 10,000

Exercise 10.3
2.
KANSAS COMPANY
General Journal
a) Straight-Line
Date Account Titles and Explanations Debit Credit
Dec. 31, 2012 Depreciation Expense 22,500
Accumulated Depreciation 22,500
b) Units-of-production

Dec. 31, 2012 Depreciation Expense 20,000

Accumulated Depreciation 20,000
c) Double-Declining-Balance
Dec. 31, 2012 Depreciation Expense 50,000
Accumulated Depreciation 50,000

a) Straight-Line
KANSAS COMPANY
Balance Sheet (partial)
December 31, 2012
Property, Plant, and Equipment
Machinery $100,000
Less: Accumulated Depreciation – Machinery 22,500
Total Machinery $ 77,500

b) Units-of-production
KANSAS COMPANY
Balance Sheet (partial)
December 31, 2012
Property, Plant, and Equipment
Machinery $100,000
Less: Accumulated Depreciation – Machinery 20,000
Total Machinery $ 80,000

c) Double-Declining-Balance
KANSAS COMPANY
Balance Sheet (partial)
December 31, 2012
Property, Plant, and Equipment
Machinery $100,000
Less: Accumulated Depreciation – Machinery 50,000
Total Machinery $ 50,000
 10.4

Depreciation Expense: (Cost – Residual Value)/ Estiamted Useful Life (5 years) = ($10,000-$400)/5 =
$1,920 per year

Year Computation Annual Partial Current Accumulated Book

Depreciation Year Year Depreciation Value
Expense Expense

2014 $10,000 $1,920 $1,920 $1,920 $8,080

2015 8,080 1,920 1,920 3,840 6,160
2016 6,160 1,920 5/12 800 4,640 5,360

Journal Entry

Date Account Title Debit Credit

June, 1, 2016 Depreciation Expense. 800

(5/12 x $1,920)

Accumulated Depreciation-Equipment 800

Depreciation Expense

Dr. Cr.

December, 31, 2014 $1,920

December, 31, 2015. 1,920

June, 1, 2016 800

Balance $4,640
 Accumulated Depreciation – Equipment

Dr. Cr.

$1,920 December, 31, 2014

$1,920 December, 31, 2015

800 June, 1, 2016

Bal. $4,640

10.4

Book value on June 1, 2016: $5,360

1. The computer is sold for $6,000

Date Account Title Debit Credit

June,1,2016 Cash $6,000
Accumulated Depreciation- Equipment $4,640
Equipment - Computer $10,000
Gain on sale – Equipment $640

2. The computer is sold for $4,000

Date Account Title Debit Credit

June,1,2016 Cash $4,000
Accumulated Depreciation – Equipment $4,640
Loss on sale – Equipment $1,360
Equipment – Computer $10,000

(3) The computer is discarded (junked or thrown away).

Date Account Title Debit Credit

June,1,2016 Accumulated Depreciation – Equipment $4,640
Loss on disposal – Equipment $5,360
Equipment - Computer $10,000
 (4) The computer is traded-in on a new, similar computer with a cost of $15,000. A trade-in
allowance of $4,800 was given on the old computer

Loss on disposal of plant assets=Book value – Fair market value of old computer =$5,360- $4,800 = $560

Cash paid = Cost of new computer- Fair market value of old computer =$15,000-$4,800= $10,200

Date Account title Debit Credit

June,1,2016 Equipment - Computer (new) $15,000
Accumulated Depreciation (old)-Equipment 4,640
Loss on disposal of plant assets 560
Equipment – Computer (old) $10,000
Cash $10,200