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Chapter 10 - Plant Assets, Natural Resources, and Intangibles
Chapter 10
Plant Assets, Natural Resources,
and Intangibles
PROBLEM SET B
Problem 10-1B (50 minutes)
Part 1
Appraised Percent Apportioned
Value of Total* Cost
Building .......................... $ 784,800 45% $ 724,500
Land ................................ 540,640 31 499,100
Land improvements ...... 226,720 13 209,300
Trucks............................. 191,840 11 177,100
Total ................................ $1,744,000 100% $1,610,000
*Percents are rounded to the nearest 1%.
2011
Jan. 1 724,500
Buildings ........................................................................
499,100
Land ................................................................................
Land Improvements ...................................................... 209,300
177,100
Trucks .............................................................................
Cash .......................................................................... 1,610,000
To record asset purchases.
Part 2
Year 2011 straight-line depreciation on building
[($724,500 - $100,500) / 12 years] = $52,000
Part 3
Year 2011 double-declining-balance depreciation on land improvements
(100% / 10 years) x 2 = 20% rate
$209,300 x 20% = $41,860
10-1
Chapter 10 - Plant Assets, Natural Resources, and Intangibles
Problem 10-1B (concluded)
Part 4
Accelerated depreciation does not increase the total amount of taxes paid
over the asset’s life. Instead, it defers or postpones taxes to the later years of
an asset’s useful life. This is because accelerated methods charge a higher
portion of asset costs against revenue in earlier years and a lower portion in
later years. The result is to reduce taxable income more in earlier years and
less in later years. [Note: From a present value perspective, there is a tax
savings from use of accelerated depreciation. The company gets to use the
tax deferred amounts for investment purposes until they are due.]
10-2
Chapter 10 - Plant Assets, Natural Resources, and Intangibles
Problem 10-2B (45 minutes)
Part 1
Building Building Land Improve- Land Improve-
Land
B C ments B ments C
Purchase price* ......... $ 769,500 $459,000 $121,500
Demolition ................. 117,000
Land grading ............. 172,500
New building.............. $1,356,000
New improvements ... ________ _______ _________ _______ $101,250
Totals .........................$1,059,000 $459,000 $1,356,000 $121,500 $101,250
*Allocation of Appraised Percent Apportioned
purchase price Value of Total** Cost
Land ......................................... $ 792,585 57% $ 769,500
Building B ................................ 472,770 34 459,000
Land Improvements B............. 125,145 9 121,500
Totals ....................................... $1,390,500 100% $1,350,000
**Percents are rounded to the nearest 1%.
Part 2
2011
Jan. 1 Land ......................................................................... 1,059,000
Building B................................................................ 459,000
Building C................................................................ 1,356,000
Land Improvements B ............................................ 121,500
Land Improvements C ............................................ 101,250
Cash ................................................................... 3,096,750
To record cost of plant assets.
Part 3
2011
24,600
Dec. 31 Depreciation Expense—Building B .......................................
Accumulated Depreciation—Building B.......................... 24,600
To record depreciation [($459,000 - $90,000)/15].
31 Depreciation Expense—Building C ...........................53,025
Accumulated Depreciation—Building C.............. 53,025
To record depreciation [($1,356,000 - $295,500)/20].
31 Depreciation Expense--Land Improvements B .........20,250
Accum. Depreciation--Land Improvements B ........ 20,250
To record depreciation [$121,500/6].
31 Depreciation Expense--Land Improvements C. ........10,125
Accum. Depreciation--Land Improvements C ........ 10,125
To record depreciation [$101,250/10].
10-3
Chapter 10 - Plant Assets, Natural Resources, and Intangibles
Problem 10-3B (50 minutes)
2010
Jan. 1 Equipment ....................................................................26,900
Cash ........................................................................ 26,900
To record costs of van ($24,950 + $1,950).
Jan. 3 Equipment .................................................................... 1,550
Cash ........................................................................ 1,550
To record betterment of van.
Dec. 31 Depreciation Expense—Equipment ........................... 4,970*
Accumulated Depreciation—Equipment ............. 4,970
To record depreciation.
*
2010 depreciation after January 3rd betterment
$26,900
Total original cost ....................................................................
1,550
Plus cost of betterment ...........................................................
Revised cost of equipment...................................................... 28,450
Less revised salvage ($3,400 + $200)) ................................... 3,600
$24,850
Cost to be depreciated ............................................................
Annual depreciation ($24,850 / 5 years) ................................. $ 4,970
2011
Jan. 1 Equipment .................................................................... 1,970
Cash ........................................................................ 1,970
To record extraordinary repair on van.
May 10 Repairs Expense—Equipment ................................... 600
Cash ........................................................................ 600
To record ordinary repair on van.
Dec. 31 Depreciation Expense—Equipment ........................... 3,642*
Accum. Depreciation—Equipment....................... 3,642
To record depreciation.
*2011 depreciation after 1/1 extraordinary repair
$30,420
Total cost ($28,450 + $1,970) ...........................................................................
4,970
Less accumulated depreciation ......................................................................
25,450
Book value ........................................................................................................
3,600
Less salvage .....................................................................................................
$21,850
Remaining cost to be depreciated ..................................................................
Revised remaining useful life (Original 5 years - 1yr. + 2yrs.) .....................................
6.0 yrs.
$ 3,642
Revised annual depreciation ($21,850 / 6 yrs) (rounded) ..............................
10-4
Chapter 10 - Plant Assets, Natural Resources, and Intangibles
Problem 10-4B (40 minutes)
2010
113,000
Jan. 1 Machinery .....................................................................
Cash ........................................................................ 113,000
To record costs of machinery ($106,600 +$6,400).
17,200
Dec. 31 Depreciation Expense—Machinery............................
Accumulated Depreciation—Machinery .............. 17,200
To record depreciation [($113,000-9,800)/6].
2011
27,583*
Dec. 31 Depreciation Expense—Machinery............................
Accum. Depreciation—Machinery ....................... 27,583
To record depreciation.
*
2011 depreciation:
$113,000
Total cost ...................................................................................
Less accumulated depreciation (from 2010) ........................... 17,200
95,800
Book value .................................................................................
Less revised salvage value....................................................... 13,050
Remaining cost to be depreciated ........................................... $ 82,750
4.0
Revised useful life ..................................................................... yrs.
1.0
Less 1 year in 2010 .................................................................... yrs.
Revised remaining useful life ................................................... yrs. 3.0
$ 27,583
Total depreciation for 2011 ($82,750/ 3 yrs) [rounded] ............
2012
27,583
Dec. 31 Depreciation Expense—Machinery............................
Accumulated Depreciation—Machinery .............. 27,583
To record depreciation.
25,240
Dec. 31 Cash ..............................................................................
Accumulated Depreciation—Machinery .................... 72,366**
Loss on Disposal of Machinery.................................. 15,394***
Machinery ............................................................... 113,000
To record sale of machine.
**
Accumulated depreciation on machine at 12/31/2012:
2010................................................................................. $ 17,200
2011................................................................................. 27,583
2012................................................................................. 27,583
Total ................................................................................ $ 72,366
***
Book value of machine at 12/31/2012:
Total cost ........................................................................ $113,000
Less accumulated depreciation .................................... (72,366)
Book value ..................................................................... $ 40,634
Loss ($25,240 cash received - $40,634 book value)..... $ 15,394
10-5
Chapter 10 - Plant Assets, Natural Resources, and Intangibles
Problem 10-5B (25 minutes)
$312,000
Cost of machine ...........................................................
28,000
Less estimated salvage value .....................................
$284,000
Total depreciable cost .................................................
Double-Declining-
Year Straight-Linea Units-of-Productionb Balancec
1 ................... $ 56,800 $ 61,400 $124,800
2 ................... 56,800 57,600 74,880
3 ................... 56,800 56,750 44,928
4 ................... 56,800 58,150 26,957
5 ................... 56,800 50,100 12,435
Totals ........... $284,000 $284,000 $284,000
a
Straight- line:
Cost per year = $284,000/5 years = $56,800 per year
b
Units-of-production:
Cost per unit = $284,000/1,136,000 units = $0.25 per unit
Year Units Unit Cost Depreciation
1 .............. 245,600 $0.25 $ 61,400
2 .............. 230,400 0.25 57,600
3 .............. 227,000 0.25 56,750
4 .............. 232,600 0.25 58,150
5 .............. 211,200 0.25 50,100*
Total ........ $284,000
* Take only enough depreciation in Year 5 to reduce book
value to the asset’s $28,000 salvage value.
c
Double-declining-balance (amounts rounded to the nearest dollar):
(100%/5) x 2 = 40% depreciation rate
Annual Accumulated Ending Book Value
Depreciation Depreciation ($312,000 Cost less
Beginning (40% of at the End of Accumulated
Year Book Value Book Value) the Year Depreciation)
1 ............ $312,000 $124,800 $124,800 $187,200
2 ............ 187,200 74,880 199,680 112,320
3 ............ 112,320 44,928 244,608 67,392
4 ............ 67,392 26,957 271,565 40,435
5 ............ 40,435 12,435** 284,000 28,000
Total ..... $284,000
** Take only enough depreciation in Year 5 to reduce book value to the
asset’s $28,000 salvage value.
10-6
Chapter 10 - Plant Assets, Natural Resources, and Intangibles
Problem 10-6B (20 minutes)
1.
Jan. 1 Machinery .................................................................. 130,000
Cash ..................................................................... 130,000
To record machinery costs.
Jan. 2 Machinery .................................................................. 3,390
Cash ..................................................................... 3,390
To record machinery costs.
Jan. 4 Machinery .................................................................. 4,800
Cash ..................................................................... 4,800
To record machinery costs.
2. a. First year
Dec. 31 Depreciation Expense—Machinery ............................17,170
Accumulated Depreciation—Machinery .............. 17,170
To record depreciation [($138,190-$18,000)/7 = $17,170].
b. Sixth year
Dec. 31 Depreciation Expense—Machinery ............................17,170
Accumulated Depreciation—Machinery .............. 17,170
To record the year’s depreciation.
3. Accumulated depreciation at the date of disposal
First six years' depreciation (6 x $17,170) ..................... $103,020
Book value at the date of disposal
Original total cost ............................................................ $138,190
Accumulated depreciation ..............................................(103,020)
$
Total .................................................................................. 35,170
a. Sold for $30,000 cash
30,000
Dec. 31 Cash ..............................................................................
Loss on Sale of Machinery ......................................... 5,170
Accumulated Depreciation—Machinery .................... 103,020
Machinery ............................................................... 138,190
b. Sold for $50,000 cash
50,000
Dec. 31 Cash ..............................................................................
Accumulated Depreciation—Machinery .................... 103,020
Machinery ............................................................... 138,190
Gain on Sale of Machinery.................................... 14,830
c. Destroyed in fire and collected $20,000 cash from insurance
20,000
Dec. 31 Cash ..............................................................................
Loss from Fire .............................................................. 15,170
Accumulated Depreciation—Machinery .................... 103,020
Machinery ............................................................... 138,190
10-7
Chapter 10 - Plant Assets, Natural Resources, and Intangibles
Problem 10-7B (20 minutes)
a.
4,450,000
Feb. 19 Mineral Deposit ............................................................
Cash ........................................................................ 4,450,000
To record purchase of mineral deposit.
b.
200,000
Mar. 21 Machinery .....................................................................
Cash ........................................................................ 200,000
To record costs of machinery.
c.
313,280
Dec. 31 Depletion Expense—Mineral Deposit ........................
Accum. Depletion—Mineral Deposit .................... 313,280
To record depletion
[$4,450,000/5,000,000 tons = $0.89 per ton.
352,000 tons x $0.89 = $313,280].
d.
14,080
Dec. 31 Depreciation Expense—Machinery............................
Accum. Depreciation—Machinery ....................... 14,080
To record depreciation
[$200,000/5,000,000 tons = $0.04 per ton.
352,000 tons x $0.04 = $14,080].
Analysis Component
Similarities—Amortization, depletion, and depreciation are similar in that
they are all methods of allocating costs of long-term assets to the periods
that benefit from their use.
Differences—They are different in that they apply to different types of
long-term assets: amortization applies to intangible assets (with definite
useful lives); depletion applies to natural resources; and depreciation
applies to plant assets. Also, amortization is typically computed using the
straight-line method, whereas the units-of-production method is routinely
used in depletion.
10-8
Chapter 10 - Plant Assets, Natural Resources, and Intangibles
Problem 10-8B (20 minutes)
1.
2011 (a)
Jan. 1 Leasehold .....................................................................30,000
Cash ........................................................................ 30,000
To record payment for sublease.
(b)
Jan. 1 Prepaid Rent................................................................. 26,400
Cash ........................................................................ 26,400
To record prepaid annual lease rental.
(c)
Jan. 3 Leasehold Improvements ........................................... 18,000
Cash ........................................................................ 18,000
To record costs of leasehold improvements.
2.
2011 (a)
Dec. 31 Rent Expense ............................................................... 6,000
Accumulated Amortization—Leasehold.............. 6,000
To record leasehold amortization ($30,000/5).
(b)
Dec. 31 Amortization Expense—Leasehold Improvements ......... 3,600
Accumulated Amortization—Leasehold
Improvements ........................................................... 3,600
To record leasehold improvement amortization
($18,000/5 years remaining on lease).
(c)
26,400
Dec. 31 Rent Expense ...............................................................
Prepaid Rent .......................................................... 26,400
To record annual lease rental.
10-9
