BACC200 Financial Accounting

Chapter Ten
Plant Assets, Natural Resources and Intangible Assets

Exercise One:

# Expenditures Land Land Building

Improvements
1. Cash purchase price of land $120,000. X

2. Architect’s fees for building plans. X

Parking lots and driveways with a total cost of

3. X
$18,000.
Demolition and removal costs of the old building
4. X
$22,000.
Attorney’s fees for legal services provided during
5. X
land purchases $2,000.

6. Cost of fences $6,000. X

Exercise Two:
a.

# Description Included Not Included

1. Cash price of $40,000. X

2. Sales taxes of $2,000 and freight costs of $500. X

Electricity bill of $200 was paid for the current

3. X
month for using the machine.

One year fire insurance policy covering the

4. X
machine at a cost of $3,000.

Material and labor costs in installing and testing

5. X
the machine of $1,500.
b.

Date Account Title and Explanation Ref Debit Credit

2014 Equipment 44,000
Cash 44,000
April 10
($40,000 + $2,000 + $500 + $1,500)
Electricity Expense 200
April 10
Cash 200
Prepaid Insurance 3,000
April 10
Cash 3,000

Exercise Three:
a) Depreciable Cost = $40,000 - $8,000 = $32,000

Annual depreciation expense = 32,000/ 4years = $8,000

Depreciation Accumulated Book Value

Year Cost
Expense Depreciation (End of Year)

2015 $40,000 $8,000 $8,000 $32,000

2016 40,000 8,000 16,000 24,000

2017 40,000 8,000 24,000 16,000

2018 40,000 8,000 32,000 8,000

a)
b)
Date Account Title and Explanation Ref. Debit Credit

Dec 31 Depreciation Expense 8,000

2016 Accumulated Depreciation – Equipment 8,000