University:
Grand Rapids Community College
Course:
Financial and Managerial Accounting: Information for Decisions - John J. Wild
Academic year:

2024
Views:

198

Pages:

3
Author:

stud_ice13

Problem 8-1A: Plant Asset Costs and Depreciation Methods 1. Allocate the Lump-Sum Purchase Price: o Total Market Value = $508,800 + $297,600 + $28,800 + $124,800 = $960,000 o Building: (508,800/960,000)×900,000=477,000 o Land: (297,600/960,000)×900,000=279,000 o Land Improvements: (28,800/960,000)×900,000=27,000(28,800/960,000) o Vehicles: (124,800/960,000)×900,000=117,000 Journal Entry: bash Debit: Building Debit: Land Debit: Land Improvements Debit: Vehicles Credit: Cash $477,000 $279,000 $27,000 $117,000 $900,000 2. First-Year Depreciation Expense on Building (Straight-Line Method): o Depreciable Cost: $477,000 - $27,000 = $450,000 o Annual Depreciation: 450,00015=30,000 3. First-Year Depreciation on Land Improvements (Double-DecliningBalance Method): o DDB Rate: 2×15=40% o Depreciation: 27,000×40%=10,800 4. Analysis Component: Accelerated depreciation methods, like doubledeclining-balance, typically result in higher depreciation expenses in the early years, which reduces taxable income initially. However, the total taxes paid over the life of the asset remain the same compared to straight-line, as the asset’s cost is fully depreciated either way. Problem 8-2A: Depreciation Methods Given: • • Cost = $257,500, Salvage Value = $20,000, Useful Life = 4 years Actual Units Produced over 4 Years: 220,000, 124,600, 121,800, and 15,200 units. 1. Depreciation Calculations: o Straight-Line Method: Annual Depreciation: 257,500−20,0004=59,375 Units-of-Production Method:  Depreciation per unit: 257,500−20,000475,000=0.50  Year 4 Depreciation: 15,200×0.50=7,600 Double-Declining-Balance Method:  DDB Rate: 2×14=50% Use the calculated depreciation values to create an annual table. Ensure the last year’s values do not depreciate below the salvage value.  o o o Problem 8-3A: Asset Cost Allocation and Straight-Line Depreciation 1. Allocate Lump-Sum Purchase Price: o Similar steps as in Problem 8-1A. 2. Single Journal Entry for Additional Costs: makefile Debit: Land [Total land cost] Debit: Building 2 [Total Building 2 cost] Debit: Land Improvements [Total land improvements] Credit: Cash [Total cost] 3. Depreciation Journal Entries: makefile Debit: Depreciation Expense (Building 2) Depreciation] Credit: Accumulated Depreciation Depreciation] o [Annual [Annual Calculate separately for Land Improvements if needed. Problem 8-4A: Computing and Revising Depreciation 1. Journal Entries for Each Transaction: o Loader Purchase: bash Debit: Equipment $287,600 Debit: Sales Tax Debit: Transportation Credit: Cash o $11,500 $1,500 $300,600 Depreciation Adjustment for Year 2: Adjust based on new useful life estimates. Problem 8-5A: Selling Plant Assets 1. Entries for Purchase and Depreciation: o Truck Purchase: bash Debit: Trucks cost) Credit: Cash $22,000 (total $22,000 2. Depreciation Adjustments: o Year 2 Adjustments for new salvage and useful life estimates. 3. Sale Journal Entries: o Use book value to determine gain/loss on sale.