Chapter 10

Fixed Assets
Worksheet

1. (a) Invoice cost €85,000

Freight costs 1,100
Installation wiring and foundation 2,200
Material and labor costs in testing 700
Acquisition cost €89,000

2. The Nichols Clinic purchased a new equipment for $80,000. The estimated residual
value is $5,000. The equipment has a useful life of five years and the clinic expects to
use it 10,000 hours. It was used 1,600 hours in year 1; 2,200 hours in year 2; 2,400
hours in year 3; 1,800 hours in year 4; 2,000 hours in year 5.
Instructions
(a) Compute the annual depreciation for each of the five years under each of the following
methods:
(1) straight-line.
(2) units-of-activity.
(a) (1) Straight-line method: = ($80,000 – $5,000)/ = $15,000 per year
5 years

(2) Units-of-activity method: = ($80,000 – $5,000) = $7.50/hour

10,000 hours

Year 1 1,600 × $7.50 = $12,000

2 2,200 × 7.50 = 16,500
3 2,400 × 7.50 = 18,000
4 1,800 × 7.50 = 13,500
5 2,000 × 7.50 = 15,000

Straight-line Units-of-Activity
Year 1$15,000 $12,000
Year 215,000 16,500
Year 315,000 18,000
Year 415,000 13,500
Year 5 15,000 15,000
Total $75,000 $75,000
 3. The December 31, 2016 statement of financial position of Cooper Company showed
Equipment of €80,000 and Accumulated Depreciation of €22,000. On January 1, 2017,
the company decided that the equipment has a remaining useful life of 6 years with a
€4,000 residual value. Instructions Compute the (a) depreciable cost of the equipment
and (b) revised annual depreciation.

(a) Net Book value, 1/1/17 (€80,000 – €22,000 = 58,000

(b) 58,000 Less residual value 4,000 Depreciable cost €54,000
(b) Revised annual depreciation €9,000 (€54,000 /6).

4. Payne Company purchased equipment in 2010 for $90,000 and estimated a $6,000
residual value at the end of the equipment's 10-year useful life. At December 31, 2016,
there was $58,800 in the Accumulated Depreciation account for this equipment using the
straight-line method of depreciation. On March 31, 2017, the equipment was sold for
$26,000.

Prepare the appropriate journal entries to remove the equipment from the books of Payne
Company on March 31, 2017.

(a) Depreciation Expense.................................................................... 2,100

Accumulated Depreciation—Equipment............................... 2,100
(To record depreciation expense for the first 3 months of
2017. $8,400 × 1/4 = $2,100)
Cash.............................................................................................. 26,000
Loss on Disposal........................................................................... 3,100
Accumulated Depreciation—Equipment ($58,800 + $2,100)........ 60,900
Equipment............................................................................. 90,000
(To record sale of equipment at a loss)
 5. A company's property records revealed the following information about its property,
plant and equipment:
Machine Cost Residual Purchase Date Depreciation Method and
No. Value Estimated Life
1 $42,000 $3,000 10/01/2018 Straight-line (3 years)
2 86,000 8,600 7/01/2018 Double-declining-balance
(5 years)

Calculate the depreciation expense for each machine for the year ended December 31 for Year 1,
and for the year ended December 31 for Year 2.

Machine 1:
Year 1____________________
Year 2____________________
Machine 2:

Year 1____________________
Year 2____________________

Machine 1:
Year 1: [($42,000 - $3,000)/3]  3/12 = $3,250
Year 2: ($42,000 - $3,000)/3 = $13,000
Machine 2:
Year 1: $86,000  40%  6/12 = $17,200
Year 2: ($86,000 - $17,200)  40% = $27,520

6. A machine was purchased for $37,000 and depreciated for five years on a straight-line
basis under the assumption it would have a ten-year life and a $1,000 residual value. At
the beginning of the machine's sixth year it was recognized the machine had three years
of remaining life instead of five and that at the end of the remaining three years its
residual value would be $1,600. What amount of depreciation should be recorded in each
of the machine's remaining three years?

($37,000 - $1,000)/10 = $ 3,600 Original annual depreciation

$3,600 × 5 years = $18,000 Accumulated depreciation after 5 years
$37,000 - $18,000 = $19,000 NBV

($19,000 - $l,600)/3 years = $ 5,800 Annual depreciation in last 3 years

 7. On July 1 of the current year, a company purchased and placed in service a machine with
a cost of $240,000. The company estimated the machine's useful life to be four years or
60,000 units of output with an estimated residual value of $60,000. During the current
year, 15,000 units were produced.

Prepare the necessary December 31 adjusting journal entry to record depreciation for the
current year assuming the company uses:
a. The straight-line method of depreciation.
b. The units-of-production method of depreciation.
c. The double-declining balance method of depreciation.

a Depreciation Expense Machinery*.................. 22,500

Accumulated Depreciation-Machinery..... 22,500

Depreciation for one-half of first year:

$240,000 – $60,000 × 6/12 = $22,500

4
b Depreciation Expense-Machinery*.................. 45,000

Accumulated Depreciation-Machinery....... 45,000

*Depreciation for current year:

(($240,000 - $60,000)/60,000) × 15,000 = $45,000

c.
Depreciation Expense–Machinery*....................... 60,000
Accumulated Depreciation Machinery........ 60,000
*($240,000 × 0.5) × 6/12 = $60,000

8. On September 30 of the current year, a company acquired and placed in service a

machine at a cost of $700,000. It has been estimated that the machine has a service life of
five years and a residual value of $40,000. Using the double-declining-balance method of
depreciation, prepare a schedule showing depreciation amounts for the current year and
the next 4 years (round answers to the nearest dollar). The company closes its books on
December 31 of each year.

Year Depreciation for the Period End of Period

Beginning of Depreciation Depreciation Accumulated Carrying
Period Carrying Rate Expense Depreciation Amount
Amount
1 700,000 40% * $70,000 $70,000 $630,000
 2 630,000 40% 252,000 322,000 378,000
3 378,000 40% 151,200 473,200 226,800
4 226,800 40% 90,720 563,920 136,080
5 136,080 40% 54,432 618,352 81,648
6 81,648 40% ** 41,648 660,000 40,000

A company purchased and installed a machine on January 1 at a total cost of $72,000. Straight-
line depreciation was calculated based on the assumption of a five-year life and no residual
value. The machine was disposed of on July 1 of the fourth year. The company uses the calendar
year.
1. Prepare the general journal entry to update depreciation to July 1 in the fourth year.
2. Prepare the general journal entry to record the disposal of the machine under each of these
three independent situations:
a. The machine was sold for $22,000 cash.
b. The machine was sold for $15,000 cash.

1. July 1 Depreciation Expense, Machinery……………... 7,200

Accumulated Depreciation, Machinery...... 7,200

$72,000/5 × 6/12 = $7.200

2a. July 1 Cash........................................................................ 22,000

Accumulated Depreciation, Machinery.................. 50.400
Gain on Disposal of Asset..................... 400
Machinery............................................. 72.000
Accumulated depreciation at 7/1/Year 4 = ($72,000/5) × 3 ½ years = 50,400

2b. July 1 Cash....................................................................... 15,000

Accumulated Depreciation, Machinery.................. 50,400
Loss on Disposal of Asset....................................... 6,600
Machinery.............................................. 72,000