Chapter 8: Quick Study

QS 8-1: Cost of Plant Assets 1. Total Recorded Cost of Scorekeeping Equipment: o Invoice Cost: $190,000 o Electrical Work: $20,000 o Delivery: $4,000 o Sales Tax: $13,700 o Total = $227,700 Note: The $1,850 for repair due to damage is not included in the cost and is expensed separately. QS 8-2: Assigning Costs to Plant Assets 1. Classifications: o Wages to train employees: Expensed. o Invoice cost of equipment: Capitalized as Equipment. o Early payment discount: Reduces the capitalized Equipment cost. o Realtor commissions for land: Capitalized as Land. o Property taxes after purchase: Expensed. o Oil for truck: Expensed. o Foundation for new building: Capitalized as Building. o Insurance during construction: Capitalized as Building. QS 8-3: Lump-Sum Purchase of Assets • • • Total Appraised Value: Land $50,000 + Building $150,000 = $200,000 Allocation: o Land: (50,000/200,000)×180,000=45,000 o Building: (150,000/200,000)×180,000=135,000 Journal Entry: bash Debit: Land Debit: Building Credit: Cash $45,000 $135,000 $180,000 QS 8-4: Straight-Line Depreciation • • • • Cost: $65,800 Salvage Value: $2,000 Useful Life: 4 years Annual Depreciation: 65,800−2,0004=15,950 QS 8-5: Units-of-Production Depreciation • • • • • Cost: $65,800 Salvage Value: $2,000 Total Units: 200 concerts Depreciation per Unit: 65,800−2,000200=318 First-Year Depreciation (45 concerts): 318×45=14,310 QS 8-6: Double-Declining-Balance Depreciation • • • • • Cost: $830,000 Salvage Value: $75,000 Useful Life: 8 years DDB Rate: 2×18=25%2 Depreciation: o Year 1: $830,000 × 25% = $207,500 o Year 2: (830,000−207,500)×25%(830,000 - 207,500) o Year 3: (622,500−155,625)×25%(622,500 - 155,625) QS 8-7: Depreciation Computations • • • • • • Cost: $13,000 Salvage Value: $3,000 Useful Life: 10 years Straight-Line: 13,000−3,00010=1,000 Units-of-Production: o Depreciation per Unit: 13,000−3,0002,000=5 o Depreciation for 160 units: 160×5=800 Double-Declining-Balance: o DDB Rate: 2×110=20% o Depreciation: 13,000×20%=2,60013,000 QS 8-8: Journal Entries for Depreciation • Straight-Line: bash Debit: Depreciation Expense Credit: Accumulated Depreciation • Units-of-Production: bash Debit: Depreciation Expense Credit: Accumulated Depreciation • $1,000 $1,000 Double-Declining-Balance: $800 $800 bash Debit: Depreciation Expense Credit: Accumulated Depreciation $2,600 $2,600 QS 8-9: Partial-Year Straight-Line Depreciation 1. First-Year Depreciation (3 months): o Cost: $140,000, Salvage Value: $20,000, Useful Life: 6 years o Annual Depreciation: 140,000−20,0006=20,000 o Three months: 20,000×312=5,000 2. Second-Year Depreciation: o Full year: $20,000 QS 8-10: Revised Depreciation • • • Cost: $65,800, Salvage Value: $2,000, Remaining Life: 2 years (after revision) Book Value at Start of Year 2: 65,800−15,950=49,850 Revised Annual Depreciation: 49,850−2,0002=23,925 QS 8-11: Revenue and Capital Expenditures 1. Classifications: o a. Motor replacement: Capital Expenditure o b. Truck tune-up: Revenue Expenditure o c. Replacement filters: Revenue Expenditure o d. Building addition: Capital Expenditure QS 8-12: Disposal of Assets 1. Sale of Equipment: o Book Value: $76,800 - $40,800 = $36,000 o Sale for $47,000: Gain of $11,000 vbnet Debit: Cash Debit: Accumulated Depreciation Credit: Equipment Credit: Gain on Sale o o Sale for $36,000: No gain or loss Sale for $31,000: Loss of $5,000 QS 8-13: Depletion of Natural Resources 1. Cost Basis: $47,000 $40,800 $76,800 $11,000 o o o o Total cost = $1,400,000 + $400,000 = $1,800,000 Salvage value = $200,000 Depletion per Unit: 1,800,000−200,0001,000,000=1.6 Depletion Expense for 180,000 tons: 180,000×1.6=288,000