# Chap 11 Kieso 15e Hwk Solutions

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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