Question

Handout 8: Accounting for Plant assets Exercise 1: On March 1, 2008, Penner Company acquired real estate on which it planned to construct a small office building. The company paid $80,000 in cash. An old warehouse on the property was razed at a cost of $8,600; the salvaged materials were sold for $1,700. Additional expenditures before construction began included $1,100 attorney's fee for work concerning the land purchase, $5,000 real estate broker's fee, $7,800 architect's fee. Land price 8,600 Instruction: Compute and journalize the acquisition cost for the land. Solution: Land cost $80,000 Old warehouse razing Salvage material sale -1.700 Expenditures before construction began: Attorney fees 1,100 Real estate broker's fees 5,000 Architect' fees (building cost) total 93,000 Cr Journal entry: Land Building Cash Dr 93,000 7,800 100,800 Exercise 2 : Assume that Lenard Company purchases a delivery truck at a cash price of $22000. Related expenditures consist of sales taxes $1320, painting and lettering $500, motor vehicle license $80, and a 3-year accident insurance policy $1600. Instruction: Compute and journalize the acquisition cost for the delivery truck. Chapter 10 Hand our 8

Answer 1

Solution to Exercise 3:-

(a) Depreciation Schedule

1. Purchase cost of truck $13,000 – estimated salvage value of $1000 = Depreciable asset cost of $12,000

2. 1 / 5-year useful life = 20% depreciation rate per year

3. 20% depreciation rate x $12,000 depreciable asset cost = $2400 annual depreciation

Year	Depreciable Cost	x	Dep. Rate	=	Annual Dep. Expense	Accumulated Depreciation	*Book Value
2005	$12000	x	20%	=	$2400	$2400	$10600
2006	$12000	x	20%	=	$2400	$4800	$8200
2007	$12000	x	20%	=	$2400	$7200	$5800
2008	$12000	x	20%	=	$2400	$9600	$3400
2009	$12000	x	20%	=	$2400	$12000	$1000

*(Book value= original cost - Accumulated depreciation)

(b) Journal Entries:-

Dr Cr

Dec 31st Depreciation expense A/c $2400

To Accumulated Depreciation Expense A/c $2400

Solution to Exercise 4:-

Dep. rate = ($13000-$1000)/100000 miles

=$0.12

Depreciation Expense for the First year

= 15000 miles* $0.12  

=$1800

Depreciation Schedule:

Solution to Exercise 5:-

(a)Straight Line method:

1. Purchase cost of equipment $120,000 – estimated salvage value of $20000 = Depreciable asset cost of $100,000

2. 1 / 5-year useful life = 20% depreciation rate per year

3. 20% depreciation rate x $100,000 depreciable asset cost = $20000 annual depreciation

Year	Depreciable Cost	x	Dep. Rate	=	Annual Dep. Expense	Accumulated Depreciation	*Book Value
2005	$100000	x	20%	=	$20000	$20000	$100000
2006	$100000	x	20%	=	$20000	$40000	$80000
2007	$100000	x	20%	=	$20000	$60000	$60000
2008	$100000	x	20%	=	$20000	$80000	$40000
2009	$100000	x	20%	=	$20000	$100000	$20000

(b)Units of activity method :

Dep. rate = ($120000-$20000)/1000000 miles =$0.1

Depreciation Expense for the First year-

= 100000 miles* $0.1

=$10000

Depreciation Schedule:

(Pleasure to help. I request you to please Like the Answer and any feedback is appreciated. If you still have any query regarding the solution mention the same in comment section.)