Chap 11 Kieso 15e Hwk Solutions

Topics: Depreciation, Generally Accepted Accounting Principles, Expense Pages: 5 (636 words) Published: April 14, 2015
CHAPTER 11

Depreciation, Impairments, and Depletion

EXERCISE 11-4 (15–25 minutes)

(a)$315,000 – $15,000 = $300,000; $300,000 ÷ 10 yrs. = $30,000

(b)$300,000 ÷ 240,000 units = $1.25; 25,500 units X $1.25 = $31,875

(c)$300,000 ÷ 25,000 hours = $12.00 per hr.; 2,650 hrs. X $12.00 = $31,800

(d)
10 + 9 + 8 + 7 + 6 + 5 + 4 + 3 + 2 + 1 = 55 OR
n(n + 1)
=
10(11)
= 55

2

2

10
X $300,000 X 1/3 =
$18,182
55

9
X $300,000 X 2/3 =
32,727
55

Total for 2015
$50,909

(e)
$315,000 X 20% X 1/3 =
$21,000

[$315,000 – ($315,000 X 20%)] X 20% X 2/3 =
33,600

Total for 2015
$54,600

[May also be computed as 20% of ($315,000 – 2/3 of 20% of $315,000)]

EXERCISE 11-8 (20–25 minutes)

Old Machine

June 1, 2012
Purchase
$31,000

Freight
200

Installation
500

Total cost
$31,700

Annual depreciation charge: ($31,700 – $2,500) ÷ 10 = $2,920

On June 1, 2013, debit the old machine for $1,980; the revised total cost is $33,680 ($31,700 + $1,980); thus the revised annual depreciation charge is: ($33,680 – $2,500 – $2,920) ÷ 9 = $3,140.

Book value, old machine, June 1, 2016:

[$33,680 – $2,920 – ($3,140 X 3)] =
$21,340
Less: Fair value
20,000
Loss on exchange
1,340
Cost of removal
75
Total loss
$ 1,415

(Note to instructor: The above computation is done to determine whether there is a gain or loss from the exchange of the old machine with the new machine and to show how the cost of removal might be reported. Also, if a gain occurs, the gain is not deferred (1) because the exchange has commercial substance and (2) the cost paid exceeds 25% of the total value of the property received.)

New Machine
Basis of new machine
Cash paid ($35,000 – $20,000)
$15,000

Fair value of old machine
20,000

Installation cost
1,500

Total cost of new machine
$36,500

Depreciation for the year beginning June 1, 2016 = ($36,500 – $4,000) ÷ 10 = $3,250.

EXERCISE 11-12 (20–25 minutes)

(a)1988–1997—($2,000,000 – $60,000) ÷ 40 = $48,500/yr.

(b)1998–2015—Building ($2,000,000 – $60,000) ÷ 40 =$48,500/yr.
Addition ($500,000 – $20,000) ÷ 30 = 16,000/yr.
$64,500/yr.

(c)No entry required.

(d)Revised annual depreciation
Building

Book value: ($2,000,000 – $1,358,000*)
$642,000
Salvage value
60,000

582,000
Remaining useful life
32 years
Annual depreciation
$ 18,188

*$48,500 X 28 years = $1,358,000

Addition

Book value: ($500,000 – $288,000**)
$ 212,000
Less: Salvage value
20,000

192,000
Remaining useful life
÷ 32 years
Annual depreciation
$ 6,000

**$16,000 X 18 years = $288,000

Annual depreciation expense—building ($18,188 + $6,000) $24,188

EXERCISE 11-19 (15–20 minutes)

(a)
Depreciation Expense:
$84,000
= $2,800 per year

30 years

Cost of Timber Sold: $1,400 – $400 = $1,000
$1,000 X 9,000 acres = $9,000,000 of value of timber
($9,000,000 ÷ 3,500,000 bd. ft.) X 700,000 bd. ft. = $1,800,000

(b)Cost of Timber Sold: $9,000,000 – $1,800,000 = $7,200,000 $7,200,000 + $100,000 = $7,300,000
($7,300,000 ÷ 5,000,000 bd. ft.) X 900,000 bd. ft. = $1,314,000

Note: The spraying costs as well as the costs to maintain the fire lanes and roads are expensed each period and are not part of the depletion base.

EXERCISE 11-20 (10–15 minutes)

Cost per barrel of oil:

Initial payment =
$500,000
=
$2.00

250,000

Rental =
$31,500
=
1.75

18,000

Premium = 5% of $55 =
2.75

Reconditioning of land =
$30,000
=
.12

250,000

Total cost per barrel

$6.62

*EXERCISE 11-25 (20–25 minutes)

2014

2015
(a)
Revenues
$200,000

$200,000

Operating expenses (excluding depreciation)
130,000

130,000

Depreciation [($27,000 – $6,000) ÷ 7]
3,000...
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