# Acc 382 by xiaoyounan

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```									Presented below is information related to Morrow Manufacturing Corporation.

Estimated Estimated Life
Asset           Cost         Salvage         (in years)
A          \$40,500          \$5,500             10
B            33,600          4,800              9
C            36,000          3,600              8
D            19,000          1,500              7
E            23,500          2,500              6
(a) Compute the rate of depreciation per year to be applied to the plant assets under the
composite method. (Round answers to 2 decimal places, i.e. 12.25.)
Composite life                         years
Composite rate                        %
(b) Prepare the adjusting entry necessary at the end of the year to record depreciation for the
year.
Description/Account                                               Debit                Credit

(c) Prepare the entry to record the sale of fixed asset D for cash of \$5,000. It was used for 6
years, and depreciation was entered under the composite method. (List multiple debit/credit
entries from largest to smallest amount, e.g. 10, 5, 2.)
Description/Account                                               Debit                 Credit

Lockhard Company purchased machinery on January 1, 2010, for \$80,000. The machinery is
estimated to have a salvage value of \$8,000 after a useful life of 8 years.

(a) Compute 2010 depreciation expense using the straight-line method.

\$
(b) Compute 2010 depreciation expense using the straight-line method assuming the machinery
was purchased on September 1, 2010.

\$
Lockhard Company purchased machinery on January 1, 2010, for \$80,000. The machinery is
estimated to have a salvage value of 8,000 after a useful life of 8 years.

(a) Compute 2010 depreciation expense using the double-declining balance method.

\$
(b) Compute 2010 depreciation expense using the double-declining balance method assuming
the machinery was purchased on October 1, 2010.

\$

Agazzi Company purchased equipment for \$304,000 on October 1, 2010. It is estimated that the
equipment will have a useful life of 8 years and a salvage value of \$16,000. Estimated
production is 40,000 units and estimated working hours are 20,000. During 2010, Agazzi uses
the equipment for 525 hours and the equipment produces 1,000 units.

Compute depreciation expense under each of the following methods. Agazzi is on a calendar-
year basis ending December 31. (Do not round intermediate computations. Round all answers
to 0 decimal places, e.g. 125.)

(a) Straight-line method for 2010.

\$
(b) Activity method (units of output) for 2010.

\$
(c) Activity method (working hours) for 2010.

\$
(d) Sum-of-the-years'-digits method for 2012.

\$
(e) Double-declining balance method for 2011.

\$

Machinery purchased for \$52,000 by Carver Co. in 2006 was originally estimated to have a life
of 8 years with a salvage value of \$4,000 at the end of that time. Depreciation has been entered
for 5 years on this basis. In 2011, it is determined that the total estimated life should be 10 years
with a salvage value of \$4,500 at the end of that time. Assume straight-line depreciation.

(a) Is it necessary to do an entry to correct the prior years' depreciation?

(b) Prepare the entry to record depreciation for 2011.
Description/Account                                                 Debit                  Credit

Presented below is information related to equipment owned by Suarez Company at December
31, 2010.

Cost                                              \$9,000,000
Accumulated depreciation to date                   1,000,000
Expected future net cash flows                     7,000,000
Fair value                                         4,400,000

As of December 31, 2010, the equipment has a remaining useful life of 4 years. Assume that
Suarez intends to dispose of the equipment in the coming year. It is expected that the cost of
disposal will be \$20,000.

(a) Prepare the journal entry (if any) to record the impairment of the asset at December 31,
2010.
Description/Account                                             Debit                Credit

(b) Is it necessary to prepare the journal entry to record depreciation expense for 2011?

(c) The asset was not sold by December 31, 2011. The fair value of the equipment on that date
is \$5,100,000. Prepare the journal entry (if any) necessary to record this increase in fair
value. It is expected that the cost of disposal is still \$20,000.
Description/Account                                              Debit                  Credit
Jonas Lumber Company owns a 7,000-acre tract of timber purchased in 2003 at a cost of \$1,300
per acre. At the time of purchase the land was estimated to have a value of \$300 per acre without
the timber. Jonas Lumber Company has not logged this tract since it was purchased. In 2010,
Jonas had the timber cruised. The cruise (appraiser) estimated that each acre contained 8,000
board feet of timber. In 2010, Jonas built 10 miles of roads at a cost of \$8,400 per mile. After the
roads were completed, Jonas logged and sold 3,500 trees containing 880,000 board feet.

(a) Determine the cost of timber sold related to depletion for 2010.

\$
(b) If Jonas depreciates the logging roads on the basis of timber cut, determine the depreciation
expense for 2010.

\$
(c) If Jonas plants five seedlings at a cost of \$4 per seedling for each tree cut, how should Jonas
treat the reforestation?

Jonas should capitalize the cost of \$

Everly Corporation acquires a coal mine at a cost of \$400,000. Intangible development costs
total \$100,000. After extraction has occurred, Everly must restore the property (estimated fair
value of the obligation is \$80,000), after which it can be sold for \$160,000. Everly estimates that
4,000 tons of coal can be extracted. If 700 tons are extracted the first year, prepare the journal
entry to record depletion.

Description/Account                                                Debit                    Credit

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