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Accounting 23rd Edition Carl S. Warren - Solutions
=+a. Compute the book value of the fixed assets for the current year and the preceding year and explain the differences, if any.
=+b. Would you normally expect the book value of fixed assets to increase or decrease during the year?
=+476 Chapter 10 Fixed Assets and Intangible Assets Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $350,000 Replacement Accumulated Book Cost Depreciation Value Property, plant, and equipment:Land . . . . . . . . . . .
=+EX 10-22 Balance sheet presentation obj. 6 List the errors you find in the following partial balance sheet:Hobart Company Balance Sheet December 31, 2010 Assets Appendix 1
=+EX 10-23 Sum-of-the-yearsdigits depreciation✔ First year: $7,143 Based on the data in Exercise 10-12, determine the depreciation for the Kubota tractor for each of the first two years, using the sum-of-the-years-digits depreciation method.Round to the nearest dollar.
=+Appendix 1 EX 10-24 Sum-of-the-yearsdigits depreciation✔ First year:$33,778 Based on the data in Exercise 10-13, determine the depreciation for the storage tank for each of the first two years, using the sum-of-the-years-digits depreciation method.Round to the nearest dollar.
=+Based on the data in Exercise 10-14, determine the depreciation for the sandblasting equipment for each of the first two years, using the sum-of-the-years-digits depreciation method. Round to the nearest dollar.A printing press priced at a fair market value of $300,000 is acquired in a
=+a. Assuming that the trade-in allowance is $120,000, what is the amount of cash given?
=+b. Assuming that the book value of the press traded in is $115,500, what is the gain or loss on the exchange?
=+Assume the same facts as in Exercise 10-26, except that the book value of the press traded in is $127,750. (a) What is the amount of cash given? (b) What is the gain or loss on the exchange?Appendix 2
=+EX 10-27 Asset traded for similar asset✔a. $180,000 Chapter 10 Fixed Assets and Intangible Assets 477 On October 1, Hot Springs Co., a water distiller, acquired new bottling equipment with a list price (fair market value) of $462,000. Hot Springs received a trade-in allowance of $96,000 on the
=+preceding fiscal year, $220,000; annual depreciation, $20,000. Assuming the exchange has commercial substance, journalize the entries to record (a) the current depreciation of the old equipment to the date of trade-in and (b) the exchange transaction on October 1.
=+Appendix 2 EX 10-28 Entries for trade of fixed asset On April 1, Gyminny Delivery Services acquired a new truck with a list price (fair market value) of $150,000. Gyminny received a trade-in allowance of $30,000 on an old truck of similar type and paid cash of $120,000. The following information
=+Verizon Communications is a major telecommunications company in the United States.
=+Verizon’s balance sheet disclosed the following information regarding fixed assets:Dec. 31, 2007 Dec. 31, 2006(in millions) (in millions)Plant, property, and equipment $ 213,994 $204,109 Less accumulated depreciation 128,700 121,753 _________ _________$ 85,294 $ 82,356 _________ __ _________
=+a. Determine Verizon’s fixed asset turnover ratio. Round to two decimal places.
=+b. Interpret Verizon’s fixed asset turnover ratio.
=+The following table shows the revenue and average net fixed assets (in millions) for a recent fiscal year for Best Buy and Circuit City Stores, Inc.:Average Net Revenue Fixed Assets Best Buy 35,934 2,825 Circuit City Stores, Inc. 12,430 880a. Compute the fixed asset turnover for each company.
=+b. Which company uses its fixed assets more efficiently? Explain.
=+The following payments and receipts are related to land, land improvements, and buildings acquired for use in a wholesale apparel business. The receipts are identified by an asterisk.a. Finder’s fee paid to real estate agency . . . . . . . . . . . . . . . . . . . . . . . . $ 4,000b. Cost of
=+e. Architect’s and engineer’s fees for plans and supervision . . . . . . . . . 36,000f. Cost of removing building purchased with land in (b) . . . . . . . . . . . 10,000 g. Proceeds from sale of salvage materials from old building . . . . . . . . 3,000*h. Cost of filling and grading land . .
=+i Premium on one-year insurance policy during construction . . . . . . . 5,400 j. Money borrowed to pay building contractor . . . . . . . . . . . . . . . . . . . 600,000*k. Special assessment paid to city for extension of water main to the property . . . . . . . . . . . . . . . . . . . . . . . .
=+l. Cost of repairing windstorm damage during construction . . . . . . . . 3,000 m. Cost of repairing vandalism damage during construction . . . . . . . . . 1,800 n. Cost of trees and shrubbery planted . . . . . . . . . . . . . . . . . . . . . . . . . 12,000
=+o. Cost of paving parking lot to be used by customers . . . . . . . . . . . . . 14,500 p. Interest incurred on building loan during construction . . . . . . . . . . . 33,000
=+q. Proceeds from insurance company for windstorm and vandalism damage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,500*r. Payment to building contractor for new building . . . . . . . . . . . . . . . 700,000 s. Refund of premium on insurance
=+10 months . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 450*Instructions
=+1. Assign each payment and receipt to Land (unlimited life), Land Improvements (limited life), Building, or Other Accounts. Indicate receipts by an asterisk. Identify each item by letter and list the amounts in columnar form, as follows:Land Other Item Land Improvements Building Accounts
=+2. Determine the amount debited to Land, Land Improvements, and Building.
=+3. The costs assigned to the land, which is used as a plant site, will not be depreciated, while the costs assigned to land improvements will be depreciated.
=+Explain this seemingly contradictory application of the concept of depreciation.Newbirth Coatings Company purchased waterproofing equipment on January 2, 2009, for $380,000. The equipment was expected to have a useful life of four years, or 8,000 operating hours, and a residual value of $36,000.
=+Determine the amount of depreciation expense for the years ended December 31, 2009, 2010, 2011, and 2012, by (a) the straight-line method, (b) the units-of-production method, and (c) the double-declining-balance method. Also determine the total depreciation expense for the four years by each
=+Straight- Units-of- Double-DecliningLine Production Balance Year Method Method Method
=+PR 10-2A Compare three depreciation methods obj. 2✔a. 2009: straightline depreciation,$86,000 Razar Sharp Company purchased tool sharpening equipment on July 1, 2008, for $48,600.The equipment was expected to have a useful life of three years, or 7,500 operating hours, and a residual value of
=+Determine the amount of depreciation expense for the years ended December 31, 2008, 2009, 2010, and 2011, by (a) the straight-line method, (b) the units-of-production method, and (c) the double-declining-balance method.
=+PR 10-3A Depreciation by three methods; partial years obj. 2✔a. 2008, $7,600 New tire retreading equipment, acquired at a cost of $144,000 at the beginning of a fiscal year, has an estimated useful life of four years and an estimated residual value of$10,800. The manager requested information
=+PR 10-4A Depreciation by two methods; sale of fixed asset objs. 2, 3 Chapter 10 Fixed Assets and Intangible Assets 479✔ 1.b. Year 1,$72,000 depreciation expense
=+In the first week of the fourth year, the equipment was sold for $19,750.Instructions
=+1. Determine the annual depreciation expense for each of the estimated four years of use, the accumulated depreciation at the end of each year, and the book value of the equipment at the end of each year by (a) the straight-line method and (b) the doubledeclining-balance method. The following
=+2. Journalize the entry to record the sale.
=+3. Journalize the entry to record the sale, assuming that the equipment sold for $14,900 instead of $19,750.
=+The following transactions, adjusting entries, and closing entries were completed by King Furniture Co. during a three-year period. All are related to the use of delivery equipment. The double-declining-balance method of depreciation is used.2008
=+Jan. 7. Purchased a used delivery truck for $45,600, paying cash.Feb. 27. Paid garage $130 for changing the oil, replacing the oil filter, and tuning the engine on the delivery truck.Dec. 31. Recorded depreciation on the truck for the fiscal year. The estimated useful
=+life of the truck is eight years, with a residual value of $10,000 for the truck.2009 Jan. 8. Purchased a new truck for $75,000, paying cash.Mar. 13. Paid garage $200 to tune the engine and make other minor repairs on the
=+used truck.Apr. 30. Sold the used truck for $30,000. (Record depreciation to date in 2009 for the truck.)
=+Dec. 31. Record depreciation for the new truck. It has an estimated trade-in value of $13,500 and an estimated life of 10 years.2010 July 1. Purchased a new truck for $82,000, paying cash.
=+Oct. 4. Sold the truck purchased January 8, 2009, for $53,000. (Record depreciation for the year.)
=+Dec. 31. Recorded depreciation on the remaining truck. It has an estimated residual value of $15,000 and an estimated useful life of 10 years.Instructions
=+Journalize the transactions and the adjusting entries.
=+PR 10-5A Transactions for fixed assets, including sale objs. 1, 2, 3
=+Data related to the acquisition of timber rights and intangible assets during the current year ended December 31 are as follows:
=+a. On December 31, the company determined that $20,000,000 of goodwill was impaired.
=+b. Governmental and legal costs of $675,000 were incurred on June 30 in obtaining a patent with an estimated economic life of 10 years. Amortization is to be for onehalf year.
=+c. Timber rights on a tract of land were purchased for $1,665,000 on February 16. The stand of timber is estimated at 9,000,000 board feet. During the current year, 2,400,000 board feet of timber were cut and sold.Instructions
=+1. Determine the amount of the amortization, depletion, or impairment for the current year for each of the foregoing items.
=+2. Journalize the adjusting entries to record the amortization, depletion, or impairment for each item.
=+PR 10-6A Amortization and depletion entries objs. 4, 5✔b. $33,750 480 Chapter 10 Fixed Assets and Intangible Assets Problems Series B
=+The following payments and receipts are related to land, land improvements, and buildings acquired for use in a wholesale ceramic business. The receipts are identified by an asterisk.a. Fee paid to attorney for title search . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,500b. Cost of
=+f. Delinquent real estate taxes on property, assumed by purchaser . . . 15,800 g. Premium on one-year insurance policy during construction . . . . . . . 4,200 h. Cost of filling and grading land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17,500 i. Architect’s and engineer’s
=+k. Cost of repairing windstorm damage during construction . . . . . . . . 4,500 l. Cost of paving parking lot to be used by customers . . . . . . . . . . . . . 15,000 m. Cost of trees and shrubbery planted . . . . . . . . . . . . . . . . . . . . . . . . . 9,000 n. Cost of floodlights installed on
=+o. Cost of repairing vandalism damage during construction . . . . . . . . . 1,500 p. Proceeds from insurance company for windstorm and vandalism damage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,000*
=+q. Payment to building contractor for new building . . . . . . . . . . . . . . . 800,000 r. Interest incurred on building loan during construction . . . . . . . . . . . 45,000 s. Refund of premium on insurance policy (g) canceled after 11 months 350*Instructions
=+1. Assign each payment and receipt to Land (unlimited life), Land Improvements (limited life), Building, or Other Accounts. Indicate receipts by an asterisk. Identify each item by letter and list the amounts in columnar form, as follows:Land Other Item Land Improvements Building Accounts
=+2. Determine the amount debited to Land, Land Improvements, and Building.
=+3. The costs assigned to the land, which is used as a plant site, will not be depreciated, while the costs assigned to land improvements will be depreciated.
=+Explain this seemingly contradictory application of the concept of depreciation.
=+PR 10-1B Allocate payments and receipts to fixed asset accounts obj. 1✔ Land, $356,200 Mammoth Company purchased packaging equipment on January 3, 2008, for $67,500.The equipment was expected to have a useful life of three years, or 25,000 operating hours, and a residual value of $4,500. The
=+Determine the amount of depreciation expense for the years ended December 31, 2008, 2009, and 2010, by (a) the straight-line method, (b) the units-of-production method, and
=+(c) the double-declining-balance method. Also determine the total depreciation expense for the three years by each method. The following columnar headings are suggested for recording the depreciation expense amounts:Depreciation Expense
=+Straight- Units-of- Double-DecliningLine Production Balance Year Method Method Method
=+PR 10-2B Compare three depreciation methods obj. 2✔a. 2008: straightline depreciation,$21,000 Chapter 10 Fixed Assets and Intangible Assets 481 Quality IDs Company purchased plastic laminating equipment on July 1, 2008, for$15,660. The equipment was expected to have a useful life of three
=+during 2008, 7,500 hours in 2009, 5,000 hours in 2010, and 2,575 hours in 2011.Instructions
=+Determine the amount of depreciation expense for the years ended December 31, 2008, 2009, 2010, and 2011, by (a) the straight-line method, (b) the units-of-production method, and (c) the double-declining-balance method. Round to the nearest dollar.
=+PR 10-3B Depreciation by three methods; partial years obj. 2✔a. 2008: $2,510 New lithographic equipment, acquired at a cost of $131,250 at the beginning of a fiscal year, has an estimated useful life of five years and an estimated residual value of $11,250.The manager requested information
=+In the first week of the fifth year, the equipment was sold for $21,500.Instructions
=+1. Determine the annual depreciation expense for each of the estimated five years of use, the accumulated depreciation at the end of each year, and the book value of the equipment at the end of each year by (a) the straight-line method and (b) the doubledeclining-balance method. The following
=+Year Expense End of Year End of Year 2. Journalize the entry to record the sale.
=+3. Journalize the entry to record the sale, assuming that the equipment was sold for$12,500 instead of $21,500.
=+PR 10-4B Depreciation by two methods; sale of fixed asset objs. 2, 3✔b. Year 1: $52,500 depreciation expense
=+The following transactions, adjusting entries, and closing entries were completed by Trail Creek Furniture Co. during a three-year period. All are related to the use of delivery equipment. The double-declining-balance method of depreciation is used.2008
=+Jan. 6. Purchased a used delivery truck for $24,000, paying cash.July 19. Paid garage $500 for miscellaneous repairs to the truck.Dec. 31. Recorded depreciation on the truck for the year. The estimated useful life of the truck is four years, with a residual value of $4,000 for the truck.2009
=+Jan. 2. Purchased a new truck for $69,000, paying cash.Aug. 1. Sold the used truck for $10,250. (Record depreciation to date in 2009 for the truck.)
=+Oct. 24. Paid garage $415 for miscellaneous repairs to the truck.Dec. 31. Record depreciation for the new truck. It has an estimated residual value of $15,000 and an estimated life of five years.2010
=+July 1. Purchased a new truck for $70,000, paying cash.Oct. 1. Sold the truck purchased January 2, 2009, for $25,000. (Record depreciation for the year.)Dec. 31. Recorded depreciation on the remaining truck. It has an estimated residual value of $18,000 and an estimated useful life of eight
=+Instructions Journalize the transactions and the adjusting entries.PR 10-5B
=+Transactions for fixed assets, including sale objs. 1, 2, 3 482 Chapter 10 Fixed Assets and Intangible Assets
=+Data related to the acquisition of timber rights and intangible assets during the current year ended December 31 are as follows:
=+a. Timber rights on a tract of land were purchased for $1,170,000 on July 5. The stand of timber is estimated at 4,500,000 board feet. During the current year, 1,370,000 board feet of timber were cut and sold.
=+b. On December 31, the company determined that $5,000,000 of goodwill was impaired.
=+c. Governmental and legal costs of $234,000 were incurred on April 4 in obtaining a patent with an estimated economic life of 12 years. Amortization is to be for three-fourths of a year.Instructions
=+1. Determine the amount of the amortization, depletion, or impairment for the current year for each of the foregoing items.
=+2. Journalize the adjusting entries required to record the amortization, depletion, or impairment for each item.
=+PR 10-6B Amortization and depletion entries objs. 4, 5✔ 1.a. $356,200 Special Activities
=+Esteban Appleby, CPA, is an assistant to the controller of Summerfield Consulting Co.In his spare time, Esteban also prepares tax returns and performs general accounting services for clients. Frequently, Esteban performs these services after his normal working hours, using Summerfield Consulting
=+Occasionally, Esteban’s clients will call him at the office during regular working hours.
=+Discuss whether Esteban is performing in a professional manner.
=+SA 10-1 Ethics and professional conduct in business The following is an excerpt from a conversation between two employees of Quantum Technologies, Pat Gapp and Faye Dalby. Pat is the accounts payable clerk, and Faye is the cashier.Pat: Faye, could I get your opinion on something?Faye: Sure,
=+How would you respond to Faye and Pat if you were Julie?
=+SA 10-2 Financial vs. tax depreciation Lonesome Dove Construction Co. specializes in building replicas of historic houses. Mike Jahn, president of Lonesome Dove Construction, is considering the purchase of various items of equipment on July 1, 2008, for $200,000. The equipment would have a useful
=+life of five years and no residual value. In the past, all equipment has been leased. For tax purposes, Mike is considering depreciating the equipment by the straight-line method. He discussed the matter with his CPA and learned that, although the straightline method could be elected, it was to
=+1. Compute depreciation for each of the years (2008, 2009, 2010, 2011, 2012, and 2013)of useful life by (a) the straight-line method and (b) MACRS. In using the straightline method, one-half year’s depreciation should be computed for 2008 and 2013.Use the MACRS rates presented on page 452.
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