Supplemental Instruction Handouts Financial Accounting Chapter 9: Property, Plant and Equipment and Intangibles Answer Key 1. A) Prepare a calculation to show the cost of this machine. $23,500 x 0.02 = $470 $23,500 - $470 = $23,030 + $590 + $2,630 + $950 + $75 = $27,275 1. B) Prepare the general journal entry for the purchase of the machine, assuming the company paid cash for the machine. Jan 6 Machine 27,275 Cash 27,275 2. A) A. Prepare a calculation showing the allocation of the total cost amongst the three items purchased. (Round your calculations to two decimal places.) $184,200 + $9,800 = $194,000 Land $86,200 $201,000 = 0.43 x $194,000 = $83,420 Land Improvements $17,700 $201,000 = 0.09 x $194,000 = $17,460 Buildings $97,100 $201,000 = 0.48 x $194,000 = $93,120 $201,000 1 $194,000 2. B) Prepare a general journal entry to record the purchase assuming Piper Plumbing Company paid cash. Mar 20 Land 83,420 Land Improvements 17,460 Building 93,120 Cash 194,000
3. A) Calculate the value of the land, land improvements and the building. Land Land Improvements Building Land $75,000 Building $50,000 Demolition $18,000 Landscaping $24,000 New Building $570,000 Land Improvements $27,000 - $27,000 Totals $167,000 $27,000 $543,000 3. B) Present a single general journal entry to record the costs incurred by TC Casual Wear, all of which were paid in cash, on April 21. Apr 21 Land 167,000 Land Improvements 27,000 Building 543,000 Cash 737,000 4. A) Calculate the depreciation for each year of this machine s life using the following method straight line. Straight Line = Cost Salvage Value = $84,600 - $14,600 = $70,000 = $14,000/ year Estimated Life 5 5 4. B) Calculate the depreciation for each year of this machine s life using the following methods units of production method. Units of Production Method = Cost Salvage Value = $84,600 - $14,600 = $70,000 = $0.10 Estimated Units 700,000 700,000 Year Units Produced 2017 75,000 x $0.10 = $7,500 2018 180,000 x $0.10 = $18,000 2019 135,000 x $0.10 = $13,500 2020 190,000 x $0.10 = $19,000 2021 150,000 x $0.10 = $15,000 we cannot use this amount because it takes us below the salvage value. Units = 75,000 + 180,000 + 135,000 + 190,000 + 150,000 = 730,000 700,000 = 30,000 over 2021 150,000 30,000 = 120,000 x $0.10 = $12,000
4. C) Calculate the depreciation for each year of this machine s life using the following methods double declining balance method. Double Declining Balance = (2 Useful Life) x Book Value Book Value = Cost Total Depreciation 2017 = (2 5) x ($84,600 0) = 0.4 x $84,600 = $33,840 2018 = (2 5) x ($84,600 - $33,840) = 0.4 x $50,760 = $20,304 2019 = (2 5) x ($50,760 - $20,304) = 0.4 x $30,456 = $12,182.40 2020 = (2 5) x ($30,456 - $12,182.40) = 0.4 x $18,273.60 = $7,309.44 we cannot use this answer because it would take this asset below the salvage value. 2020 = $18,273.60 - $14,600 = $3,673.60 2021 = $0 because we are at the salvage value in 2014. 5. A) Using straight line depreciation, calculate the depreciation for the trencher for 2017. $400,000 - $40,000 = $360,000 = $72,000/year x 9 = $54,000 for 2010 12 5 5 B) Calculate the book value of this trencher at the end of 2018. Accumulated Depreciation = $54,000 (2010) + $72,000 (2011) = $126,000 Book Value = $400,000 - $126,000 = $274,000 C) Using straight line depreciation, calculate the revised depreciation for 2019. $274,000 - $14,000 = $260,000 = $41,600 8 1.75 6.25 D) Prepare the necessary year end adjusting entry to record the revised depreciation for 2012. Dec 31 Depreciation Expense - Trencher 41,600 Accumulated Depreciation Trencher 41,600
6. A) Calculate the book value of each asset. Building = $450,000 - $180,000 = $270,000 Equipment = $95,000 - $45,000 = $50,000 Land = $125,000 - $0 = $125,000 Truck = $122,000 - $80,000 = $42,000 6. B) Calculate impairment loss for each asset that has a book value more than replacement value. Book Value Recoverable Amount = Impairment loss if the answer comes up positive. No impairment loss is recorded if the answer comes up a negative or equal to zero. Building Equipment Land Truck = $270,000 - $240,000 = $30,000 (Impairment Loss) = $50,000 - $55,000 = ($5,000) (No Impairment Loss) = $125,000 - $145,000 = ($20,000) (No Impairment Loss) = $42,000 - $42,000 = $0 (No Impairment Loss) 6. C) Prepare a general journal for December 31, 2019 to record impairment loss. Dec 31 Impairment Loss 30,000 Building 30,000 7. A) The machine is sold for $70,000 cash. July 2 Cash 70,000 Gain on disposal 3,750
7. B) The machine is destroyed in a fire and EC Industries receives an insurance settlement of $60,000. July 2 Cash 60,000 Loss on disposal 6,250 7. C) The machine and $60,000 cash was traded for a new machine of like purpose that has a fair value of $130,000. The machine was given a trade in allowance of $70,000. July 2 Machine 130,000 Gain on Exchange 3,750 Cash 60,000 When fair value of the new asset we are getting in the exchange is known, you need to record a gain or loss on exchange of assets. 7. D) The machine and $65,000 cash was traded for a piece of land to build a new manufacturing plant. The land has a value of $165,000. The fair value of the land is unknown. July 2 Land 131,250 Cash 65,000 When the fair value of the new asset we are getting in the exchange is unknown, there is no gain or loss recorded. Instead, we record the value of the new asset for the difference of the assets we are giving up minus the accumulated depreciation.