AC 302 CHAPTER 11 QUESTIONS AND PROBLEMS
Exercise 11 QUESTION 1
Name Date
Instructor Course
Intermediate Accounting 14th Edition by Kieso Weygandt and Warfield
Primer on Using Excel in Accounting by Rex A Schildhouse
E11-1 (Depreciation Computationsâ€â€SL, SYD, DDB) Lansbury Company purchases equipment on
January 1, Year 1, at a cost of $518,000 . The asset is expected to have a service
life of 12 years and a salvage value of $50,000
Instructions:
"(a) Compute the amount of depreciation for each Years 1 through 3 using the straight-line
depreciation method."
Straight-line method depreciation for each of Years 1 through 3 is computed as:
Cost: Amount
Salvage value: Amount
Depreciable value: Formula
Asset life: (Years) Number
Annual straight-line depreciation value: Formula
Excel formula for straight-line depreciation is =SLN(Cost,Salvage,Life)
Area for Excel calculations as desired.
"(b) Compute the amount of depreciation for each Years 1 through 3 using the sum-of-years digits
depreciation method."
"The sum of 1 through 12 = 1+2+3+4+5+6+7+8+9+10+11+12 =
1+12 + 2+11 + 3+10 + 4+9 + 5+8 + 6+7 =
(1+12) + (2+11) + (3+10) + (4+9) + (5+8) + (6+7) =
(13) + (13) + (13) + (13) + (13) + (13) =
13 X (12/2) =
13 X 6 = 78
the sum of the first year and the last year multiplied by one half of the total number of years.
Hint: Since ""Sum-of-Years-Digits"" title contains an ""S"", use salvage value to compute periodic
depreciation expense."
Cost: Amount
Salvage value: Amount
Depreciable value: Formula
"Numerator /
Year" Denominator "Period
Depreciation"
Depreciation expense for year: 1 Number Number Formula
Depreciation expense for year: 2 Number Number Formula
Depreciation expense for year: 3 Number Number Formula
The Excel formula for Sum-of-Years-Digits Depreciation is =SYD(Cost,Salvage,Life,Period)
Depreciation expense for year: 1 Formula
Depreciation expense for year: 2 Formula
Depreciation expense for year: 3 Formula
(c) Compute the amount of depreciation for each Years 1 through 3 using the double-declining balance method. (In performing your calculations, round constant percentage to the nearest one-hundredth of a point and round answers to the nearest dollar.)
"Hint: Since ""Double-Declining Balance Method"" title does not contain an ""S"", do not use salvage value
to compute periodic depreciation expense. However, ensure that book value does not violate
salvage value."
Cost: Amount
Salvage value: Amount
Asset life: (Years) Number
Annual Straight-line Depreciation rate: Formula
Double-Declining factor: 200%
Double-Declining annual rate: Formula
Year: "Beginning
Balance" "Double
Declining
rate:" "Annual
Depreciation
Amount:" "Ending
Balance"
1 Amount Percentage Formula Formula
2 Value Percentage Formula Formula
3 Value Percentage Formula Formula
The Excel formula for Accelerated Depreciation is =DDB(Cost,Salvage,Life,Period,Factor)
1 Formula
2 Formula
3 Formula
Note: Minor differences may occur due to rounding and significant digits.
Exercise 11-2
Name: Date:
Instructor: Course:
Intermediate Accounting, 14th Edition by Kieso, Weygandt, and Warfield
Primer on Using Excel in Accounting by Rex A Schildhouse
E11-2 (Depreciationâ€â€Conceptual Understanding) Hasselback Company acquired a plant asset at
the beginning of Year 1. The asset has an estimated service life of 5 years. An
employee has prepared depreciation schedules for this asset using three different methods to compare the results of using one method with the results of using other methods. You are to assume that the following schedules have been correctly prepared for this asset using:
(1) the straight-line method,
(2) the sum-of-the-years’-digits method, and
(3) the double-declining-balance method.
Year Straight-Line Sum-of-Years'-Digits Double-Declining-Balance
1 $9,000 $15,000 $20,000
2 9,000 12,000 12,000
3 9,000 9,000 7,200
4 9,000 6,000 4,320
5 9,000 3,000 1,480
Total $45,000 $45,000 $45,000
Instructions:
Answer the following questions.
(a) What is the cost of the asset being depreciated?
Enter answer here.
Area for formulas as desired.
Area for formulas as desired.
Area for formulas as desired.
(b) What amount, if any, was used in the depreciation calculations for the salvage value for this asset?
Enter answer here.
(c) Which method will produce the highest charge to income in Year 1?
Enter answer here.
(d) Which method will produce the highest charge to income in Year 4?
Enter answer here.
(e) Which method will produce the highest book value for the asset at the end of Year 3?
Enter answer here.
Computations:
Area for formulas as desired.
Area for formulas as desired.
Area for formulas as desired.
(f) If the asset is sold at the end of Year 3, which method would yield the highest gain (or lowest loss) on disposal of the asset?
Enter answer here.
Exercise 11-4
Name: Date:
Instructor: Course:
Intermediate Accounting, 14th Edition by Kieso, Weygandt, and Warfield
Primer on Using Excel in Accounting by Rex A Schildhouse
E11-4 (Depreciation Computationsâ€â€Five Methods) Wenner Furnace Corp. purchased machinery
for $279,000 on May 1, 2012. It is estimated that it will have a useful life of
10 years, salvage value of $15,000 , production of 240,000
units, and working hours of 25,000 . During 2013, Wenner Corp. uses the machinery for
2,650 hours, and the machinery produces 25,500 units.
Instructions:
From the information given, compute the depreciation charge for 2013 under each of the following methods. (Round to the nearest dollar.)
(a) Straight-line (Note - Utilize Excel formula =SLN(Cost,Salvage,Life) to solve the problem.)
Formula
"(b) Units-of-output (Note: Since units-of-production has an ""s"" in it, utilize salvage value in computing
period depreciation.)"
Cost: Amount
Salvage value: Amount
Depreciable value: Formula
Life units expected: Number
Depreciation per unit: Formula
Period units: Number
Period depreciation: Formula
"(c) Working hours (Note: Working hours is a ""units-of-production"" method and since units-of-
production has an ""s"" in it, utilize salvage value in computing period depreciation.)"
Cost: Amount
Salvage value: Amount
Depreciable value: Formula
Hours of expected life: Number
Depreciation per hour: Formula
Period hours: Number
Period depreciation: Formula
"(d) Sum-of-years-digits (Note - Utilize Excel formula =SYD(Cost,Salvage,Life,Period) to solve the
problem.) (Note: Second year covers two depreciation periods.)"
First part of 2013 Formula Time period factor Formula
Second part of 2013 Formula Time period factor Formula
Formula
"(e) Declining balance, (10 year life, DDB results in 20% annual rate, use 200% for Factor in Excel).
(Note: Utilize Excel formula =DDB(Cost,Salvage,Life,Period,Factor) to solve the problem.
(Note: Second year covers two depreciation periods.)"
First part of 2013 Formula Time period factor Formula
Second part of 2013 Formula Time period factor Formula
Formula
Problem 11-1
Name: Date:
Instructor: Course:
Intermediate Accounting, 14th Edition by Kieso, Weygandt, and Warfield
Primer on Using Excel in Accounting by Rex A Schildhouse
P11-1 (Depreciation for Partial Periodâ€â€SL, SYD, and DDB) Alladin Company purchased Machine #201 on May 1, 2012. The following information relating to Machine #201 was gathered at the end of May.
Price $85,000
Credit terms 2 / 10, N / 30
Freight-in costs $800
Prep and installation costs $3,800
Labor costs during regular production operations $10,500
It was expected that the machine could be used for 10 years, after which the salvage
value would be $0 Alladin intends to use the machine only 8 years, however,
after which it expects to be able to sell it for $1,500 The invoice for Machine #201 was paid
May 5, 2012. Alladin uses the calendar year as the basis for the preparation of financial statements.
Instructions:
"(a) (1) Compute the depreciation expense for the years indicated using the straight-line method for
2012. (Round to the nearest dollar.)"
Total Cost = Price Amount
Less: Credit terms Amount
Freight-in costs Amount
Prep and installation costs Amount
Formula
Salvage value Amount
Total Cost = Formula
Depreciable value Formula
Life of the asset Number
Annual depreciation exp Formula
Partial year depreciation Formula 8 of 12 months of 2012
"(a) (2) Compute the depreciation expense for the years indicated using the sum-of-years'-digits method
for 2013. (Round to the nearest dollar.)
Utilize the Excel formula =SYD(Cost,Salvage,Life,Period)."
(Round to the nearest dollar.)
Formula Formula for last 4 of 12 months of first year
Formula Formula for first 8 of 12 months of second year
Formula Total for second calendar year
"(a) (3) Compute the depreciation expense for the years indicated using the double-declining balance
method for 2012. (Round to the nearest dollar.)
Utilize the Excel formula =DDB(Cost,Salvage,Life,Period)."
(Round to the nearest dollar.)
Formula Formula for last 8 of 12 months of first year
"(b) Suppose Kate Crow, the president of Alladin, tells you that because the company is a new
organization, she expects it will be several years before production and sales reach optimum
levels. She asks you to recommend a depreciation method that will allocate less of the company-
depreciation expense to the early years and more to later years of the assets’ lives. What method
would you recommend?"
Enter text answer here.
Problem 11-12
Name: Date:
Instructor: Course:
Intermediate Accounting, 14th Edition by Kieso, Weygandt, and Warfield
Primer on Using Excel in Accounting by Rex A Schildhouse
11-12 (Depreciationâ€â€SL, DDB, SYD, Act., and MACRS) On January 1, 2011, Locke Company, a
small machine-tool manufacturer, acquired for $1,260,000 a piece of new industrial
equipment. The new equipment had a useful life of 5 years, and the salvage value
was estimated to be $60,000 . Locke estimates that the new equipment can produce
12,000 machine tools in its first year. It estimates that production will decline by
1,000 units per year over the remaining useful life of the equipment.
The following depreciation methods may be used:
(1) Straight-line,
(2) Double-declining balance,
(3) Sum-of-years'-digits, and
(4) Units-of-output.
For tax purposes, the class life is 7 years. Use the MACRS tables for c
omputing depreciation.
Instructions:
"(a) Which depreciation method would maximize net income for financial statement reporting for the
3-year period ending December 31, 2013? Prepare a schedule showing the amount of
accumulated depreciation at December 31, 2013, under the method selected. Ignore present
value, income tax, and deferred income tax considerations."
The straight-line method would provide the highest total net income for financial reporting over the three years, as it reports the lowest total depreciation expense. These computations are provided below.
(1) Straight-line: Cost Amount
Salvage value Amount
Depreciable value Formula
Life Number
Annual depreciation expense Formula
Year "Depreciation
Expense" "Accumulated
Depreciation"
2011 Formula Formula
2012 Formula Formula
2013 Formula Formula
Formula
(2) Double-declining balance:
Year "Depreciation
Expense" "Accumulated
Depreciation"
2011 Formula Formula
2012 Formula Formula
2013 Formula Formula
Formula
(3) Sum-of-the-years’-digits:
Year "Depreciation
Expense" "Accumulated
Depreciation"
2011 Formula Formula
2012 Formula Formula
2013 Formula Formula
Formula
(4) Units-of-output:
Year "Expected
Output" "Depreciation
Expense" "Accumulated
Depreciation"
Cost Amount 2011 Formula Formula Formula
Salvage value Amount 2012 Formula Formula Formula
Depreciable value Formula 2013 Formula Formula Formula
Expected life output Number 2014 Formula Formula
Unit depreciation expense Formula 2015 Formula
Total units Formula
"(b) Which depreciation method (MACRS or optional straight-line) would minimize net income for
income tax reporting for the 3-year period ending December 31, 2011? Determine the amount of
accumulated depreciation at December 31, 2011. Ignore present value considerations."
General MACRS method: (Values taken from the MACRS rates schedule.)
Total Cost "MACRS
Rates (%)" "Depreciation
Expense" "Accumulated
Depreciation"
2011 1,260,000 × Percentage = Formula Formula
2012 1,260,000 × Percentage = Formula Formula
2013 1,260,000 × Percentage = Formula Formula
Formula
Optional straight-line method:
Total Cost "Depreciation
Rate" "Annual
Depreciation" "Accumulated
Depreciation"
2011 1,260,000 × Rate = Formula Formula
2012 1,260,000 × Rate = Formula Formula
2013 1,260,000 × Rate = Formula Formula
Formula
Enter text answer here.
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