Exercises and Problems Week 2

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Exercises and Problems –W2

E9-1
The following expenditures relating to plant assets were made by Spaulding Company during the first 2 months of 2011.

1. Paid $5,000 of accrued taxes at time plant site was acquired. 2. Paid $200 insurance to cover possible accident loss on new factory machinery while the machinery was in transit. 3. Paid $850 sales taxes on new delivery truck.

4. Paid $17,500 for parking lots and driveways on new plant site. 5. Paid $250 to have company name and advertising slogan painted on new delivery truck. 6. Paid $8,000 for installation of new factory machinery.

7. Paid $900 for one-year accident insurance policy on new delivery truck. 8. Paid $75 motor vehicle license fee on the new truck.

Instructions

(a) Explain the application of the cost principle in determining the acquisition cost of plant assets.

I need to add up the total cost that it takes to make the business operational to include taxes, insurance, and other fees that may apply in order to run. Of the list above, all are necessary to add together to find the acquisition costs of the plant assets which is $32,775.

(b) List the numbers of the foregoing transactions, and opposite each indicate the account title to which each expenditure that should be debited.

1. Paid $5,000 of accrued taxes at time plant site was acquired. Land
2. Paid $200 insurance to cover possible accident loss on new factory machinery while the machinery was in transit. Equipment
3. Paid $850 sales taxes on new delivery truck.
Equipment (added to the total cost of the delivery truck)
4. Paid $17,500 for parking lots and driveways on new plant site. Land improvements
5. Paid $250 to have company name and advertising slogan painted on new delivery truck. Equipment (added to the total cost of the delivery truck)
6. Paid $8,000 for installation of new factory machinery.
Equipment
7. Paid $900 for one-year accident insurance policy on new delivery truck. Prepaid Asset
8. Paid $75 motor vehicle license fee on the new truck.
Expense rv;’lvl;’x
E9-7
Brainiac Company purchased a delivery truck for $30,000 on January 1, 2011.The truck has an expected salvage value of $2,000, and is expected to be driven 100,000 miles over its estimated useful life of 8 years. Actual miles driven were 15,000 in 2011 and 12,000 in 2012.

Instructions

(a) Compute depreciation expense for 2011 and 2012 using:

(1) The straight-line method
$30,000-$2,000=$28,000
$28,000/8=$3,500Annual
Depreciable Depreciation Depreciation Accumulated Book Year Costs X Rate = Expense depreciation value 2011$28,000%12.5$3,500$3,500$26,500

2012$28,000%12.5$3,500$7,000$23,000

(2) The units-of-activity method
$28,000/100,000=$0.28
2011__$0.28 x 15,000mi = $4,200
2012__$0.28 x 12,000mi = $3,360Annual
Units of Depreciation Depreciation Accumulated Book Year activity X Cost = Expense depreciation value 2011 15,000$0.28$4,200$4,200$25,800

2012 12,000$0.28$3,360$7,560$22,440

(3) The double-declining balance method
2011__%25*$30,000=$7,500
2012__%25*$22,500=$5,625Annual
Book Value Depreciation Depreciation Accumulated Book Year beginning year X Rate = Expense depreciation value 2011 $30,000%25$7,500$7,500$22,500

2012 $22,500%25$5,625$5,625$16,875

(b) Assume that Brainiac uses the straight-line method.

(1) Prepare the journal entry to record 2011 depreciation.

Cost of delivery truck$30,000
Accumulated depreciation$3,500
Book value as of 12/31/2011$26,000

(2) Show how the truck would be reported in the December 31, 2011, balance sheet.

December 31, 2011depreciation expense$3,500
Accumulated...
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