Chapter 8: Problem Set B

Problem 8-1B: Plant Asset Costs and Depreciation Methods 1. Allocate Lump-Sum Purchase Price: o Total Market Value = $890,000 + $427,200 + $249,200 + $213,600 = $1,780,000 o Building: (890,000/1,780,000)×1,800,000=900,000(890,000/1,780,000) o Land: (427,200/1,780,000)×1,800,000=432,000 o Land Improvements: (249,200/1,780,000)×1,800,000=252,000(249,200/1,780,000) o Trucks: (213,600/1,780,000)×1,800,000=216,000(213,600/1,780,000) Journal Entry: bash Debit: Building Debit: Land Debit: Land Improvements Debit: Trucks Credit: Cash $900,000 $432,000 $252,000 $216,000 $1,800,000 2. First-Year Depreciation Expense on Building (Straight-Line Method): o Depreciable Cost: $900,000 - $120,000 = $780,000 o Annual Depreciation: 780,00012=65,000 3. First-Year Depreciation on Land Improvements (Double-DecliningBalance Method): o DDB Rate: 2×110=20% o Depreciation: 252,000×20%=50,400252,000 4. Analysis Component: Accelerated depreciation methods like doubledeclining-balance result in higher depreciation expenses initially, reducing taxable income and taxes paid in early years. However, total taxes paid over the asset’s life remain the same compared to straight-line. Problem 8-2B: Depreciation Methods Given: • • Cost = $324,000, Salvage Value = $30,000, Useful Life = 5 years Units Produced: 355,600, 320,400, 317,000, 343,600, 138,500 1. Depreciation Calculations: o Straight-Line Method:  Annual Depreciation: 324,000−30,0005=58,800 Units-of-Production Method:  Depreciation per unit: 324,000−30,0001,470,000=0.20  Year 4 Depreciation: 343,600×0.20=68,720 o Double-Declining-Balance Method:  DDB Rate: 2×15=40% 2. Depreciation Schedule (for each method): o Use the calculated values to create an annual table with each year’s depreciation per method. o Problem 8-3B: Asset Cost Allocation and Straight-Line Depreciation 1. Allocate Lump-Sum Purchase Price: o Similar steps as in Problem 8-1B for allocation based on appraised values. 2. Journal Entry for Additional Costs: makefile Debit: Land [Total land cost] Debit: Building B [Total Building B cost] Debit: Land Improvements [Total land improvements] Credit: Cash [Total cost] 3. Depreciation Journal Entries: makefile Debit: Depreciation Expense (Building B) Depreciation] Credit: Accumulated Depreciation Depreciation] o [Annual [Annual Calculate separately for Land Improvements if needed. Problem 8-4B: Computing and Revising Depreciation 1. Journal Entries for Each Transaction: o Van Purchase: bash Debit: Equipment $25,860 Debit: Sales Tax Credit: Cash $1,810 $27,670 2. Depreciation Adjustment for Year 2: Adjust based on new useful life estimates. Problem 8-5B: Selling Plant Assets 1. Entries for Purchase and Depreciation: o Machine Purchase: bash Debit: Machinery (total cost) Credit: Cash $114,270 $114,270 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. Problem 8-6B: Disposal of Plant Assets 1. Entries for Machine Purchase and Setup: o Machine Purchase: bash Debit: Machine Debit: Wiring Debit: Securing Machine Credit: Cash $150,000 $3,510 $4,600 $158,110 2. Depreciation Journal Entries: o First-Year Depreciation (Straight-Line): bash Debit: Depreciation Expense $18,270 Credit: Accumulated Depreciation $18,270 o Disposal Year Depreciation as required by the question conditions. 3. Disposal Journal Entries: o Based on sale price, recognize gain or loss. Problem 8-7B: Natural Resources 1. Entries for Purchase and Initial Costs: o Land Purchase: bash Debit: Natural Resources (Ore) Credit: Cash o $5,400,000 $5,400,000 Machinery Installation: bash Debit: Machinery Credit: Cash $400,000 $400,000 2. Depletion and Depreciation for First Nine Months: o Depletion per ton: 5,400,000/4,000,000=1.35 o Depletion: 254,000×1.35=342,900 bash Debit: Depletion Expense Credit: Accumulated Depletion $342,900 $342,900 3. Depreciation on Machinery (Proportionate to Depletion): o Depreciation: 254,000 o Debit: Depreciation Expense $25,400 Credit: Accumulated Depreciation $25,400