Question

Units-of-activity Depreciation

A truck acquired at a cost of $420,000 has an estimated residual value of $21,750, has an estimated useful life of 59,000 miles, and was driven 5,300 miles during the year. Determine the following. If required, round your answer for the depreciation rate to two decimal places.

(a)	The depreciable cost	$
(b)	The depreciation rate	$	per mile
(c)	The units-of-activity depreciation for the year	$

Double-Declining-Balance Depreciation

A building acquired at the beginning of the year at a cost of $109,200 has an estimated residual value of $4,400 and an estimated useful life of four years. Determine the following.

(a)	The double-declining-balance rate		%
(b)	The double-declining-balance depreciation for the first year	$

Capital and Revenue Expenditures

On August 7, Green River Inflatables Co. paid $3,090 to install a hydraulic lift and $54 for an air filter for one of its delivery trucks.

Journalize the entries for the new lift.

August 7

Journalize the entry for air filter expenditures.

August 7

Sale of Equipment

Equipment was acquired at the beginning of the year at a cost of $575,000. The equipment was depreciated using the straight-line method based on an estimated useful life of 9 years and an estimated residual value of $42,260.

a. What was the depreciation for the first year? Round your answer to the nearest cent.
$

b. Using the rounded amount from Part a in your computation, determine the gain(loss) on the sale of the equipment, assuming it was sold at the end of year eight for $96,328.

Round your answer to the nearest cent and enter as a positive amount.
$  

c. Journalize the entry to record the sale. If an amount box does not require an entry, leave it blank. Round your answers to the nearest cent.

Down Deep Mining Co. acquired mineral rights for $47,500,000. The mineral deposit is estimated at 50,000,000 tons. During the current year, 13,000,000 tons were mined and sold.

a. Determine the depletion rate. If required, round your answer to two decimal places.
$ per ton

b. Determine the amount of depletion expense for the current year.
$

c. Journalize the adjusting entry on December 31 to recognize the depletion expense.

Dec. 31

Answer 1

Answer-1-

(a)	The depreciable cost	$	Depreciable Cost= Cost of the asset- Residual value =$420,000-$21,750 =$398,250
(b)	The depreciation rate	$	Depreciation Rate= Depreciable Cost/ Useful life of the asset =$398,250/ 59,000 miles =$6.75 per mile
(c)	The units-of-activity depreciation for the year	$	Depreciation= Miles during the year* Depreciation rate per mile =5,300 miles*$6.75 per mile =$35,775

Answer-2-

(a)	The double-declining-balance rate	100%/4*2 =50%
(b)	The double-declining-balance depreciation for the first year	Depreciation= Cost*Double-declining balance rate =$109,200*50% =$54,600

Answer-3-Journal Entry

Date	Account Title and Explanation	Debit ($)	Credit ($)
August 7	Delivery Truck	3,090
	Cash		3,090
	(To record the new lift)
August 7	Repairs and Maintenance Expenses	54
	Cash		54
	(To record air filter expenditure)

Answer-4-a-The depreciation for the first year= $575,000-$42,260/ 9 years

=$59,193

Depreciation for 8 years= $59,193*8 years

=$473,544

Residual Value at the end of 8 year= $575,000-$473,544

=$101,456

Find Gain or (Loss)= Selling Price-WDV

=$96,328- $101,456

=$(5,128)

Loss=$5,128

Journal Entry:-

Date	Account Title and Explanation	Debit ($)	Credit ($)
	Accumulated Depreciation-Equipment ($59,193*8)	473,544
	Cash	96,328
	Loss on sale of equipment	5,128
	Equipment		575,000
	(To record sale of equipment)

Answer-5-a-Depletion Rate Per Unit= Depletable Cost/ Unit of resources

=$47,500,000/ 50,000,000

=$0.95 per ton

So $0.95 is the amount per ton of the mineral that the company will use to calculate it's depletion expense for each year. So now all you have to do is simply multiply $0.95 by the amount of tons that were mined and sold this year.

b-Depletion expense for current year = 13,000,000 tons x $0.95 = $12,350,000

c-

Date	Account Title and Explanation	Debit	Credit
Dec 31.	Depletion expense	12,350,000
	Accumulated depletion		12,350,000
	(being depletion of 13,000,000 tons)

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