Exercise 1

Calculate the capitalized cost of the equipment as shown below:

Particulars Amount
Purchase cost $ 365,000
Add:
State Sales tax $ 29,200
Freight cost $ 5,600
Insurance while in transit $ 800
Installation costs $ 2,000

The capitalized cost of equipment $ 402,600

Exercise 2
1. Use a T- account to show the balances and changes during 2010 in Boston Beer's:
Property, Plant, and Equipment account
PPE
227,795
13,608 300
7,091
234,012

Accumulated depreciation— Property, Plant, & equipment account.

Accumulated depreciation -
PPEs
80,774
6,951 17,300
91,123

2. Show the journal entry to record Boston Beer's sale of property, plant, and equipment during 2010
Dr Accumulated depreciation 6,951
Dr Cash 20
Dr Loss on disposal 120
Cr PPE 7,091
oston Beer's:

t, and equipment during 2010.

Exercise 2.6
Cash 25,500
Book value 6,000
Original cost 25,000
Accumulated depreciation 19,000
Fair value 7,700
1. The exchange has commercial substance.
Gain = Fair value - Book value = 7.700 - 6.000 = 1.700
Dr New Truck (PPE) 33,200
Dr Accumulated depreciation 19,000
Cr Old Truck (PPE) 25,000
Cr Cash 25,500
Cr Gain on exchange 1,700
2. The exchange lacks commercial substance.
Dr New Truck (PPE) 31,500
Dr Accumulated depreciation 19,000
Cr Old Truck (PPE) 25,000
Cr Cash 25,500
Exercise 8

On January 1, 2013, Hobart Mfg. Co. purchased a drill press at a cost of $36,000. The drill press is e
During its 10-year life, the equipment is expected to produce 500,000 units of product. In 2013 and

1. The straight-line method

Depreciation expense 3000

Asset book value at beginning

2013 36,000
2014 33,000

2. The double-declining-balance meth

Dpreciation rate 10%
Accelerated depreciation rate 20%

Asset book value at beginning

2013 36,000
2014 28,800

3. The sum-of-the-years'-digits meth

Sum of the years digits 55

Asset book value at beginning

2013 36,000
2014 30,545

4. The units-of-production method

Asset book value at beginning

2013 36,000
2014 34,500
1. Compute depreciation for 2013 and 2014 and the book value of the drill press at December 31, 20
2013 Depreciation charge
Book value
2014 Depreciation charge
Book value
2. Compute depreciation for 2013 and 2014 and the book value of the drill press at December 31, 20

2013 Depreciation charge = 2*Straight-line depreciation percent*Book

Book value
2014 Depreciation charge
Book value
3. Compute depreciation for 2013 and 2014 and the book value of the drill press at December 31, 20

Sum of the years' digits = 1+2+3+4+5+6+7+8+9+10 = 55

2013 Depreciation charge = (Cost - Residual)*Remaining useful life/Su

Book value
2014 Depreciation charge
Book value
4. Compute depreciation for 2013 and 2014 and the book value of the drill press at December 31, 20

2013 Depreciation charge = (Cost - Residual)*Actual number of unit pr

Book value
2014 Depreciation charge
Book value
ess at a cost of $36,000. The drill press is expected to last 10 years and have a residual value of $6,000.
uce 500,000 units of product. In 2013 and 2014, 25,000 and 84,000 units, respectively, were produced.

1. The straight-line method

Depreciation expense Accumulated depreciation

3,000 3,000
3,000 6,000

2. The double-declining-balance method

Depreciation expense Accumulated depreciation

7,200 7,200
5,760 5,760

3. The sum-of-the-years'-digits method

Depreciation charge = (Cost - Residual)*Remaining useful life/Sum of the years'digit

Depreciation expense Accumulated depreciation

5,455 5,455
4,909 10,364

4. The units-of-production method

Depreciation expense Accumulated depreciation

1,500 1,500
5,040 6,540
value of the drill press at December 31, 2013 and 2014, assuming the straight-line method is used.
3,000
33,000
3,000
30,000
value of the drill press at December 31, 2013 and 2014, assuming the double-declining-balance method is use

2*Straight-line depreciation percent*Book value at the beginning in the period

7,200
28,800
5,760
23,040
value of the drill press at December 31, 2013 and 2014, assuming the sum-of-the-years'-digits method is used

s = 1+2+3+4+5+6+7+8+9+10 = 55
(Cost - Residual)*Remaining useful life/Sum of the years'digit
5,455
30,545
4,909
25,636
value of the drill press at December 31, 2013 and 2014, assuming the units-of-production method is used.

(Cost - Residual)*Actual number of unit produced/Estimated pro duction capacity

1,500
34,500
5,040
29,460
s and have a residual value of $6,000.
00 units, respectively, were produced.

Book value at end of year

33,000
30,000

Book value at end of year

28,800
23,040

ful life/Sum of the years'digit

Book value at end of year

30,545
25,636

Book value at end of year

34,500
29,460
the straight-line method is used.

the double-declining-balance method is used.

in the period

the sum-of-the-years'-digits method is used

the units-of-production method is used.

duction capacity
Exercise 9
1. Calculate depreciation for 2013
Depreciation charge 25,000
2. Prepare the journal entry to record the revaluation equipment
31/12/2013 Dr Depreciation expense 25,000
CR Accumulated depreciation 25,000
CA 325,000
FV 299,000
Downward (FV<CA) 26,000
NET METHOD
DR Accumulated depreciation 25,000
CR Equipment (PPEs) 25,000
DR Revaluation Expense (P/L) 26,000
CR Equipment (PPEs) 26,000
GROSS METHOD
Before %
Cost 350,000 107.69%
Accumulated depreciation 25,000 7.69%
CA 325,000 100.00%

DR Accumulated depreciation 2,000

DR Revaluation Expense (P/L) 26,000
CR Equipment (PPEs) 28,000
3. Calculate depreciation for 2014
Depreciation charge for 2014 46,000
4. Repeat requirement 2 assuming that the fair value of the equipment at the end of 2013 is $338,000
CA 325,000
FV 338,000
Upward (FV>CA) 13,000
NET METHOD
DR Accumulated depreciation 25,000
CR Equipment (PPEs) 25,000
DR Equipment (PPEs) 13,000
CR Revaluation Surplus (OCI) 13,000
GROSS METHOD
Before %
Cost 350,000 107.69%
Accumulated depreciation 25,000 7.69%
CA 325,000 100.00%

DR Equipment (PPEs) 14,000

CR Accumulated depreciation 1,000
CR Revaluation Surplus (OCI) 13,000
 After Different
322,000 (28,000)
23,000 (2,000)
299,000 (26,000)

d of 2013 is $338,000.
After Different
364,000 14,000
26,000 1,000
338,000 13,000