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2 award: poii1ts On January 2, 2013, the Cerritos Band acquires sound equipment for concert performances at a cost of \$65,800. The band estimates it will use this equipment for four years, during which time it anticipates performing about 200 concerts. It estimates that after four years it can sell the equipment for \$2,000. During year 2013, the band performs 45 concerts. Compute the year 2013 depreciation using the units-of-production method. lect formula for the depreciation rate of Units of Production : (Cost Salvage)/ Total units of production Galculate 2013 depreciation expense: Depreciation per concert Concerts in 2013 Depreciation in 2013 \$ 319 DO.I 45.I I.

3 sward: i>oiiits..... In early January 2013, NewTech purchases computer equipment for \$154,000 to use in operating activities for the next four years. It estimates the equipment's salvage value at \$ Prepare a table showing depreciation and book value for each of the four years assuming straigl1t-line depreciation. Straight-Line Deoreciation Choose Nwnerator: Choose Denominator: Annual Depreciation Expense Cost minus Salvage./ Estimated Useful Life (years)./ = Depreciation Expense \$ 129,000./ 4./ = ~ 32,250 ~~~~~~~~~~~~~~~~~~~~~~~~~ Year Annual Depreciation Year-End Book Value \$ 32,250./ \$ 121,750./ ,250./ 89,500./ ,2so ~To_ta_1 ---'-l \$~~~~-1 2_9_,oo_o--'-l ~-'--~~~~~~~---'I~

4 award: poir'its..... Hortez Co. owns equipment that cost \$76,800, with accumulated depreciation of \$40,800. Hortez sells the equipment for cash. Record the sale of the equipment assuming Hortez sells the equipment for (1) \$4 7,000 cash, (2) \$36,000 cash, and (3) \$3 1,000 cash. Event General Journal Debit Credit 1 Cash./ 47,000./ Accumulated depreciation./ 40,800./ Equipment./ 76,800./ Gain on sale of equipment.) 11,000./ 2 Cash./ 36,000./ Accumulated depreciation./ 40,800./ Equipment./ 76,800./ 3 Cash./ 31,000./ Accumulated depreciation./ 40,800./ Loss on sale of equipment./ 5,000./ Equipment./ 76,800./ y

5 award: points a. Paid \$40,000 cash to replace a compressor on a refrigeration system that extends its useful life by four years. b. Paid \$200 cash per truck for the cost of their annual tune-ups. c. Paid \$175 for the monthly cost of replacement filters on an air-conditioning system. d. Completed an addition to an office building for \$225,000 cash. 1. Classify the above transactions as either revenue or capital expenditures. ransaction a b c d capital expenditure Revenue expenditure Revenue expenditure Capital expenditure 2. Prepare the journal entries to record transactions a and d. Transaction General Journal Debit Credit a Equipment./ 40,000./ Gash./ 40,000./ d Building./ 225,000./ Cash./ 225,000./

6 Liltua Company pays \$375,280 for real estate plus \$20, 100 in closing costs. The real estate consists of land appraised at \$157,040; land improvements appraised at \$58,890; and a building appraised at \$176, award: Allocate the total cost among the three purchased assets. Appraised Value Percent of Total Appraised Value x Total Cost of Acquisition =Apportioned Cost Land \$ 157,040.i 40%.i Land improvements 58,890.i 15%.i -- tbuilding 176,670.i 45%.i s \$ 392, % x 395,380.i \$ 158, 152.i x 395,380.i 59,307.i x 395,380.i 177,92 1.i 1\$ 395,380

7 sward: points... Prepare the journal entry to record the purchase. Event General Journal Debit Credit 1 Land./ 158,152./ Land improvements./ 59,307./ Building./ 177,921./ Gash./ 395,380./

8 sward: points..... A fteet of refrigerated delivery trucks is acquired on January 5, 2013, at a cost of \$830,000 with an estimated useful life of eight years and an estimated :salvage value of \$75,000. Compute the depreciation expense for the first three y ears using the double-declining-balance method. Depreciation for the Period I End of Period I Beginning of Depreciation Depreciation Accumulated ~nual Period Period Book Rate(%) Expense Depreciation II Book Value Value " First Year \$ 830,000./ 25%./ \$ 207,500./ \$ 207,500 I\$ - f Second Year 622,500./ 25%./ 155,625./ 363,~ Third Year 466,875./ 25%./ 116,719./ 479,844 --~- 622, ,875 ~ 350,1 56 j

9 8. sward: poinrs Corentine Company acquires an ore mine at a cost of \$1,400,000. It incurs additional costs of \$400,000 to access the mine, which is estimated to hold 1,000,000 tons of ore. 180,000 tons of ore are mined and sold the first year. The estimated value of the land after the ore is removed is \$200,000. Calculate the depletion expense from the information given. (Do not round your intermediate calculations.) \$ Amount subject to depletion \$ Total units of capacity tdepleron per unit (#.##) \$ xtracted and sold in period Depletion expense \$ 1,800,000./ 200,000./ 1,600,000./ 1,000,000./ 1.60./ 180,000.,I 288,000.,I 1. Prepare the entry to record the cost of the ore mine. Event General J ournal 1 Ore mine Gash Debit Credit.I 1,800,000./J.I 1,800,000.,I.. _ 2. Prepare the year-end adjusting entry. Event 1 General J ournal Depletion expense- Ore mine Accumulated depletion- Ore mine Debit Credit.I 288,000.I[.I 288,000.,I

10 9. sward: poinrs Kegler Bowling installs automatic scorekeeping equipment with an invoice cost of \$190,000. The electrical work required for the installation costs \$20,000. Additional costs are \$4,000 for delivery and \$13,700 for sales tax. During the installation, a component of the equipment is carelessly left on a lane and hit by the automatic lan e ~l e aning machine. The co st of repairing the component is \$1,850. What is the total recorded cost of the automatic scorekeeping equipment? I Total cost Included Excluded DR Machinery Invoice cost 1\$ 190,000 Included./ \$ 190,000 Electrical work required for installation 20,000 Included 20,000 Deliver/ costs 4,000 Included./- 4,000 Sales tax 13,700 Included./ 13,700 f Repair costs 1,850 T Excluded./ ' \$ Total \$ 229,550 \$ 227,700 \$ DR Expense 1,850 1,850 -

11 10 award: poir'its Timberly Construction negotiates a lump-sum purchase of several assets from a company that is going out of business. The purchase is completed on January 1, 2013, at a total cash price of \$850,000 for a building, land, land improvements, and four vehicles. The estimated market values of the assets are building, \$441,600; land, \$249,600; land improvements, \$67,200; and four vehicles, \$201,600. The company's fiscal year ends on December 31. Required: 1.1 Prepare a table to allocate the lump-sum purchase price to the separate assets purchased. Allocation of total cost Appraised Value Percent of Total Appraised Value x Total cost of Acquisition Apportioned Cost Building \$ 441,600./ 46%.,I x \$ 850,000./ \$ 391,000yl Land 249,600./ 26%.,I x \$ 850,000./ 22 1,000./ Land improvements 67,200./ Vehicles 201,600./ Total 1\$ 960,000 I 7%./ ~\$ 21%./ ~\$ 100% I 850,000./ 850,000./ 1\$ 59,500./ 178,500./ 850,000 I 1.2 Prepare the journal entry to record the purchase. Date General Journal Jan 01 Building -----t Land Land improvements Vehicles Cash.I.I.I.I.I Debit 39 1,000./ 221,000./ 59,500./ 178,500./ Credit 850,000./ 2. Compute the depreciation expense for year 2013 on the building using the straight-line method, assuming a 15-year life and a \$29,000 salvag e value. preciation expense on building \$ L...:~~~...:..~~~... :...~ 24,1 33./ 3. Compute the depreciation expense for year 2013 on the land improvements assuming a five-year life and double-declining-balance depreciation.._'-pr_e_ci_a_tio_n_e_x.:.. pe_ nse _ o_n_1_an_d_i_m.:..p_ro_v_e_me_ nts._\$ 23,800./

12 11. award: poifits.. Ramirez Company installs a computerized manufacturing machine in its factory at the beginning of the year at a cost of \$43,500. The machine's useful life is estimated at 10 years, or 385,000 units of product, with a \$5,000 salvage value. During its second year, the machine produces 32,500 units of product. Determine the machine's second-year depreciation and year end book value under the straight-line method. Straight-Line Deoreciation Choose Numerator: Choose Denominator: Cost minus Salvage Estimated Useful Life (years) \$ 38,500./ I ear 2 Deprec1abon \$ 3,850./ ear End Book Value (Year 2) \$ 35,800./ ~~--./ = 10./ = Annual Depreciation Expense I Depreciation Expense,\$ 3,850

13 12. award: Caleb Co. owns a machine that costs \$42,400 with accumulated depreciation of \$18,400. Caleb exchanges the machine for a newer model t11at has a market value of \$52,000. (1)Record the exchange assuming Caleb paid \$30,000 cash and the exchange has commercial substance. Event General Journal Debit Credit 1 Machinery (new)./ 52,000./ Accumulated depreciation- Machinery (old)./ 18,400./ Loss on exchange of assets./ 2,000./ Gash./ 30,000./ Machinery (old)./ 42,400./ (2) Record the exchange assuming Caleb pays \$22,000 cash and the exchange lacks commercial substance. Event General Journal Debit Credit 1 Machiner1 (new)./ 46,000./ Accumulated depreciation- Machinery (old)./ 18,400./ Cash./ 22,000./ Machinery (old)./ 42,400./

14 In January 2013, Mitzu Co. pays \$2,700,000 for a tract of land with two buildings on it. It plans to demolish Building 1 and build a new store in its place. Building 2 will be a company office; it is appraised at \$570,000, with a useful life of 20 years and an \$90,000 salvage value. A lighted parking lot near Building 1 has improvements (Land Improvements 1) valued at \$540,000 that are expected to last another 18 years with no salvage value. Without the buildings and improvements, the tract of land is valued at \$1,890,000. The company also incurs the following additional costs: Cost to demolish Building 1 Cost of additional land grading Cost to construct new building (Building 3), having a useful life of 25 years and a \$398,000 salvage value Cost of new land improvements (Land Improvements 2) near Building 2 having a 20-year useful life and no salvage value Total costs \$ 340, ,400 2,262, ,000 \$5,675,800

15 13. award: Required: 1. Allocate the costs incurred by Mitzu to the appropriate columns and total each column. Allocation of purchase price Appraised Value Percent oftotal Appraised x Value II Total cost of acquisition = Apportioned Cost Land \$ 1,890,000yl 63%yl x \$ '--!suilding 2 570,000yl 19%yl x Land Improvements 1 540,000yl 18% '1 x - Totals \$ 3,000, % 2, 700,000yl = \$ 1,701,000yl 2,700,000yl = 5 13, 000~1 2,700,000yl =. I\$ 2,?00, ,000yl Land Building 2 Purchase Price \$ 1,701,000yl \$ 513,000yl ' \$ Demolition 340,400 ' 0 Land grading 195,400 ' 0 New building (Construction cost) 0 0 New improvements cost 0 0 Totals 1\$ 2,236,800 1\$ 513,000 1\$ I Building 3 Land Land!!!IP!ovements 1 ~ovements2 0 \$ 486,000yl \$ ,262,000yl yl 2,262,000 1\$ 486,000 1\$ 178,000

16 14. award: 8.30 out of points 2. Prepare a single journal entr/ to record all the incurred costs assuming they are paid in cash on January 1, Date General Journal Debit Credit Jan 01 Land./ 2,236,800./ Building 2./ 513,000./ Land improvements 1./ 486,000./ Land improvements 2./ 178,000./ Building 3./ 2,262,000./ x x

17 15 award: points'"' 3. Using the straight-line method, prepare the December 31 adjusting entries to record depreciation for the 12 months of2013 when these assets were in use. Date General Journal Debit Credit Dec 31 Depreciation expense- Building 2./ 21,150./ Accumulated depreciation- Building 2./ 21,150./ Dec 31 Depreciation expense- Building 3./ 74,560./ Accumulated depreciation- Building 3./ 74,560./ Dec 31 Depreciation expense- Land improvements 1./ 27,000./ Accumulated depreciation- Land improvements 1./ 27,000./ Dec 31 Depreciation expense- Land improvements 2./ 8,900./ Accumulated depreciation- Land improvements 2./ 8,900./

18 16 award: points Rizio Co. purchases a machine for \$12,500, terms 2/10, n/60, FOB shipping point. The seller prepaid the \$360 freight charges, adding the amount to the invoice and bringing its total to \$12,860. The machine requires special steel mounting and power connections costing \$895. Another \$4 75 is paid to assemble tl1e machine and get it into operation. In moving the machine to its steel mounting, \$180 in damages occurred. Materials costing \$40 are used in adjusting the machine to produce a satisfactory product. The adjustments are normal for this machine and are not the result of the damages. Complete the below table to calculate the cost recorded for this machine. (Rizio pays for this machine within the cash discount period.) J\mount included in cost of equipment: Invoice price of machine \$ J Less: Discount./ 250./ Net purchase price I 12,250 Assembly./ 475./ Freight charges./ 360./ Materials used in adjusting./ 40./ Mounting and power connections./ 895./ _I 0 Total cost to be recorded \$ H,020 0

19 17. sward: poir'ifs.. On January 2, 2013, the Cerritos Band acquir0es sound equipment for concert performances at a cost of \$65,800. The band estimates it will use this equipment for four years, during which time it anticipates performing about 200 concerts. It estimates that after four years it can sell the equipment for \$2,000. During year 2013, the band performs 45 concerts. Assume that the Cerritos Band uses straight-line depreciation but realizes at tl1e start of the second year that due to concert bookings beyond expectations, this equipment will last only a total of three years. The salvage value remains unchanged. Compute the following at the point of revision: Book value at point of revision rremaining depreciable cost I Depreciation per year for years 2 and 3 \$ \$ \$ 49,850_.I 47,850_.I 23,925_.I

20 18. 8\\'tud: poii'its On January 2, 2013, the Cerritos Band acquires sound equipment for concert performances at a cost of \$65,800. The band estimates it will use this e quipment for four years, during which time it anticipates performing about 200 concerts. It estimates t11at after four years it can sell the equipment for \$2,000. During year 2013, the band performs 45 concerts. Compute the year 2013 depreciation using the straight line method.

21 19 award: l>oints On April 1, 20 12, Cyclone's Backhoe Co. purchases a trencher for \$280,000. The machine is expected to last five years and have a salvage value of \$40,000. Compute depreciation expense for both years ending December 2012 and 2013 assuming the company uses the double-declining-balance method. ltlnnual Period Beginning of Period Book Value Depreciation for the Period Depreciation Partial Depreciation Accumulated Rate Year Expense Depreciation End of Period Book Value \$ 280,000./ 40%./ / \$ 84, 000./ ~ \$ 84,000 ' \$ 196, \$ 196,000./ 40%./ 12/1 2./ \$ 78,400./ \$ 162,400 1\$ 117,600

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