PRACTICE EXERCISES

CHAPTER 10 – PLANTS ASSETS

Exercise 10.1
SES Corporation purchased land adjacent to its plant to improve access for trucks making
deliveries. Expenditures incurred in purchasing the land were as follows: purchase price,
$55,000; broker’s fees, $6,000; title search and other fees, $5,000; demolition of an old building
on the property, $5,700; grading, $1,200; digging foundation for the road, $3,000; laying and
paving driveway, $25,000; lighting $7,500; signs, $1,500.
List the items and amounts that should be included in the Land account. Calculate Land
acquisition cost.

Exercise 10.2

Equipment was acquired on January 1, 2013, at a cost of $75,000. The equipment was originally
estimated to have a salvage value of $5,000 and an estimated life of 10 years. Depreciation has
been recorded through December 31, 2016, using the straight-line method. On January 1, 2017,
the estimated salvage value was revised to $7,000 and the useful life was revised to a total of 8
years.
Requirement:
1. Calculate the book value at the time of the revision (January 1, 2017).
2. Determine the depreciation expense for 2017.

Exercise 10.3
ProTech Company purchased a machine for $400,000. The company expectes the service life of
the machine to be 5 years. During that time, it is expected that the machine’s useful life will be
200,000 hours. The anticipated salvage value is $30,000. The machine was disposed of after 5
years of use. Actual hours used during the five years of the asset’s life was:
Year 1: 50,000 hours used
Year 2: 40,000 hours used
Year 3: 35,000 hours used
Year 4: 45,000 hours used

Year 5: 30,000 hours used

Requirements:
Prepare the 5 years depreciation schedule for the machine. Find the depreciation expense and
the book value of the machine for each of the 5 years using the following depreciation
methods:
1. Straight-line
2. Declining balance
3. Units of activity
Note: Prepare a depreciation schedule (with columns headings: Year, Beginning Book Value,
Depreciation Expense, Accumulated Depreciation, and End Book Value)

Exercise 10.4
Texas Company purchased a truck to use in their business on January 1, 2022 at a cost of
$50,000. The truck’s estimated useful life was 5 years, and the residual value is $5,000. Texas
Company depreciates all its assets using the straight-line method.

Requirements
1. Assuming that the truck is disposed of on July 1, 2023, prepare the journal entry to record
the partial year’s depreciation, and prepare T-Accounts listing the account balances for the
Truck account and its related Accumulated Depreciation account at July 1, 2023.
2. Prepare the journal entry required at July 1, 2023 to record the sale or disposal of the truck
under each of the following independent assumptions:
a. The truck is sold for $37,800.
b. The truck is sold for $24,000.
c. The truck is discarded (junked or thrown away).
d. The truck is traded-in on a new, similar truck with a cost of $90,000. A trade-in
allowance of $12,000 was given on the old truck.