Question Details

CHAPTER 10 PART 12 PLANT ASSETS, NATURAL RESOURCES, AND INTANGIBLE ASSETS

BRIEF EXERCISES
BE 211
Indicate whether each of the following expenditures should be classified as land (L), land
improvements (LI), buildings (B), equipment (E), or none of these (X).
_____ 1. Parking lots
_____ 2. Electricity used by a machine
_____ 3. Excavation costs
_____ 4. Interest on building construction loan
_____ 5. Cost of trial runs for machinery
_____ 6. Drainage costs
_____ 7. Cost to install a machine
_____ 8. Fences
_____ 9. Unpaid (past) property taxes assumed
_____10. Cost of tearing down a building when land and a building on it are purchased

BE 212
Seller Corporation purchased land adjacent to its plant to improve access for trucks making
deliveries. Expenditures incurred in purchasing the land were as follows: purchase price,
$50,000; broker- fees, $6,000; title search and other fees, $5,000; demolition of an old building
on the property, $5,700; grading, $1,200; digging foundation for the road, $3,000; laying and
paving driveway, $25,000; lighting $7,500; signs, $1,500. List the items and amounts that should
be included in the Land account.

BE 213
Eastman Company purchased a delivery truck for $35,000 on January 1, 2008. The truck was
assigned an estimated useful life of 5 years and has a residual value of $10,000. Compute
depreciation expense using the double-declining-balance method for the years 2008 and 2009.

BE 214
Eastman Company purchased a delivery truck for $35,000 on January 1, 2008. The truck was
assigned an estimated useful life of 100,000 miles and has a residual value of $10,000. The truck
was driven 18,000 miles in 2008 and 22,000 miles in 2009. Compute depreciation expense using
the units-of-activity method for the years 2008 and 2009.

BE 215
Porika Company purchased a truck for $57,000. The company expected the truck to last four
years or 100,000 miles, with an estimated residual value of $6,000 at the end of that time. During
the second year the truck was driven 27,000 miles. Compute the depreciation for the second year
under each of the methods below and place your answers in the blanks provided.
Units-of-activity $
Double-declining-balance $

BE 216
On January 1, 2006, Ecker Company purchased a computer system for $20,500. The system had
an estimated useful life of 5 years and no salvage value. At January 1, 2008, the company
revised the remaining useful life to two years. What amount of depreciation will be recorded for
2008 and 2009?

BE 217
Robot Enterprises sold equipment on January 1, 2008 for $5,000. The equipment had cost
$24,000. The balance in Accumulated Depreciation at January 1 is $20,000. What entry would
Robot make to record the sale of the equipment?

BE 218
On January 1, 2008, Freeport Enterprises purchased natural resources for $1,200,000. The
company expects the resources to produce 12,000,000 units of product. (1) What is the depletion
cost per unit? (2) If the company mined and sold 20,000 units in January, what is depletion
expense for the month?

BE 219
On January 2, 2008, Elneer Company purchased a patent for $38,000. The patent has an
estimated useful life of 25 years and a 20-year legal life. What entry would the company make at
December 31, 2008 to record amortization expense on the patent?

BE 220
Using the following data for Rocky, Inc., compute its asset turnover ratio.
Rocky, Inc.
Net Income 2008 $ 123,000
Total Assets 12/31/08 2,443,000
Total Assets 12/31/07 1,880,000
Net Sales 2008 2,135,000

EXERCISES
Ex. 221
Hunt Company purchased factory equipment with an invoice price of $80,000. Other costs
incurred were freight costs, $1,100; installation wiring and foundation, $2,200; material and labor
costs in testing equipment, $700; oil lubricants and supplies to be used with equipment, $500; fire
insurance policy covering equipment, $1,400. The equipment is estimated to have a $5,000
salvage value at the end of its 5-year useful service life.
Instructions
(a) Compute the acquisition cost of the equipment. Clearly identify each element of cost.
(b) If the double-declining-balance method of depreciation was used, the constant percentage
applied to a declining book value would be __________.
10 - 36 Test Bank for Accounting Principles, Eighth Edition

Ex. 222
For each entry below make a correcting entry if necessary. If the entry given is correct, then state
"No entry required."
(a) The $60 cost of repairing a printer was charged to Computer Equipment.
(b) The $5,000 cost of a major engine overhaul was debited to Repair Expense. The overhaul is
expected to increase the operating efficiency of the truck.
(c) The $6,000 closing costs associated with the acquisition of land were debited to Legal
Expense.
(d) A $500 charge for transportation expenses on new equipment purchased was debited to
Freight-In.

Ex. 223
Benedict Company was organized on January 1. During the first year of operations, the following
expenditures and receipts were recorded in random order in the account, Land.
Debits
1. Cost of real estate purchased as a plant site (land and building). $ 220,000
2. Accrued real estate taxes paid at the time of the purchase of the real estate. 4,000
3. Cost of demolishing building to make land suitable for construction of a new
building. 15,000
4. Architect's fees on building plans. 14,000
5. Excavation costs for new building. 24,000
6. Cost of filling and grading the land. 5,000
7. Insurance and taxes during construction of building. 6,000
8. Cost of repairs to building under construction caused by a small fire. 7,000
9. Interest paid during the year, of which $54,000 pertains to the construction
period. 64,000
10. Full payment to building contractor. 760,000
11. Cost of parking lots and driveways. 36,000
12. Real estate taxes paid for the current year on the land. 4,000
Total Debits $1,159,000
Credits
13. Insurance proceeds for fire damage. $3,000
14. Proceeds from salvage of demolished building 3,500
Total Credits $6,500
Instructions
Analyze the foregoing transactions using the following tabular arrangement. Insert the number of
each transaction in the Item space and insert the amounts in the appropriate columns.
Item Land Building Other Account Title

10 - 38 Test Bank for Accounting Principles, Eighth Edition
Ex. 224
Duncan Company purchased a machine at a cost of $90,000. The machine is expected to have a
$5,000 salvage value at the end of its 5-year useful life.
Instructions
Compute annual depreciation for the first and second years using the
(a) straight-line method.
(b) double-declining-balance method.

Ex. 225
Reynolds Company purchased a new machine for $300,000. It is estimated that the machine will
have a $30,000 salvage value at the end of its 5-year useful service life. The double-decliningbalance
method of depreciation will be used.
Instructions
Prepare a depreciation schedule which shows the annual depreciation expense on the machine
for its 5-year life.

Ex. 226
Tanner Company purchased equipment on January 1, 2007 for $70,000. It is estimated that the
equipment will have a $5,000 salvage value at the end of its 5-year useful life. It is also estimated
that the equipment will produce 100,000 units over its 5-year life.
Instructions
Answer the following independent questions.
1. Compute the amount of depreciation expense for the year ended December 31, 2007, using
the straight-line method of depreciation.
2. If 16,000 units of product are produced in 2007 and 24,000 units are produced in 2008, what
is the book value of the equipment at December 31, 2008? The company uses the units-ofactivity
depreciation method.
3. If the company uses the double-declining-balance method of depreciation, what is the
balance of the Accumulated Depreciation—Equipment account at December 31, 2009?

Ex. 227
A plant asset acquired on October 1, 2008, at a cost of $300,000 has an estimated useful life of
10 years. The salvage value is estimated to be $30,000 at the end of the asset's useful life.
Instructions
Determine the depreciation expense for the first two years using:
(a) the straight-line method.
(b) the double-declining-balance method.
10 - 40 Test Bank for Accounting Principles, Eighth Edition

Ex. 228
Tony-, a popular pizza hang-out, has a thriving delivery business. Tony- has a fleet of three
delivery automobiles. Prior to making the entry for this year's depreciation expense, the
subsidiary ledger for the fleet is as follows:
Accumulated
Estimated Depr.—Beg. Miles Operated
Car Cost Salvage Value Life in Miles of the Year During Year
1 $21,000 $3,000 50,000 $2,520 20,000
2 18,000 2,400 60,000 2,340 22,000
3 20,000 2,500 70,000 2,000 19,000
Instructions
(a) Determine the depreciation rates per mile for each car.
(b) Determine the Depreciation Expense for each car for the current year.
(c) Make one compound journal entry to record the annual Depreciation Expense for the fleet.

Ex. 229
The Barnett Clinic purchased a new surgical laser for $80,000. The estimated salvage value is
$5,000. The laser has a useful life of five years and the clinic expects to use it 10,000 hours. It
was used 1,600 hours in year 1; 2,200 hours in year 2; 2,400 hours in year 3; 1,800 hours in year
4; 2,000 hours in year 5.
Instructions
(a) Compute the annual depreciation for each of the five years under each of the following
methods:
(1) straight-line.
(2) units-of-activity.
(b) If you were the administrator of the clinic, which method would you deem as most
appropriate? Justify your answer.
(c) Which method would result in the lowest reported income in the first year? Which method
would result in the lowest total reported income over the five-year period?

10 - 42 Test Bank for Accounting Principles, Eighth Edition
Ex. 230
The December 31, 2007 balance sheet of Ritter Company showed Equipment of $64,000 and
Accumulated Depreciation of $18,000. On January 1, 2008, the company decided that the
equipment has a remaining useful life of 6 years with a $4,000 salvage value.
Instructions
Compute the (a) depreciable cost of the equipment and (b) revised annual depreciation.