Question

need help with problems 9-1b and 9-2b

Chapter 9 Problems: Set B P9-18 Russo Company organized on January 1. During the first year of Determine acquisition operations, the following plant asset expenditures and receipts were recorded in costs of land and random order building Debit Accrued real estate taxes paid at time of purchase of real estate 2. Real estate taxes on land paid for the current year 3. Full payment to building contractor 4. Excavation costs for new building 5. Cost of real estate purchased as a plant site (land $75,000 and 1. 5,000 7,500 490,000 19,000 building $25,000) 6. Cost of parking lots and driveways 7. Architect's fees on building plans 8. Installation cost of fences around property 9. Cost of demolishing building to make land suitable for construction of 100,000 18,000 9,000 6,000 new building S 681.500 Credit S 3.500 10. Proceeds from salvage of demolished building Analyze the foregoing transactions using the following column headings. Insert the number of each transaction in the Item column, and then insert the amounts in the other appropriate columns. For amounts entered in the Other Accounts column, also indicate the account title. Land $128,500 Building $518,000 Land Building Item Р9-2B In recent years, Darnell Company purchased three machines. Because of Corpuledereain heavy turnover in the accounting department, a different accountant was in charge of under different methods selecting the depreciation method for each machine, and each selected a different LO 2 method. Information conceming the machines is summarized below Salvage Useful Life Depreciation Machine AcquiredCostValue in Years 1/1/14 $105,000 $ 5,000 1/1/15 180,000 10,000 11/1/17 125,000 15,000 Method 10 Straight-line Declining-balance Units-of-activity For the declining-balance method, the company uses the double-declining rate. For the units-of-activity method, total machine hours are expected to be 25,000. Actual hours of use in the first 3 years were 2017, 2,000; 2018, 4,500, and 2019, 5,500 Instructions (a) Compute the amount of accumulated depreciation on each machine at (a) Machine 2, 2017 $104,063 December 31, 2017 (b) If Machine 2 had been purchased on May 1 instead of January 1, what would be the depreciation expense for this machine in (1) 2016 and (2) 2017?

Answer 1

P9-1B (all figures in $)
Item	Land	Building	Other Accounts
1	5000
2			7500
3		490000
4		19000
5	100000
6			18000
7		9000
8			6000
9	23500 (27000-3500)
Total	128500	518000	31500

P9-2B ( all figures in $)
Part (a)
Machine 1	Straight Line method (SLM)
Date of acquistion	1-Jan-14
Date as on accumulated dep	31-Dec-17
Difference in years	4
Cost of Acquistion (COA)	105000
Salvage Value (SV)	5000
Useful Life in years	10
Depreciation under SLM	((COA-SV)/Useful Life)* Number of years
i.e.	((105000-5000)/10)*4)
i.e.	40000
Therefore Accumulated Dep as on 31 Dec 2017	40000

Machine 2	Declining - Balance
Date of acquistion	1-Jan-15
Date as on accumulated dep	31-Dec-17
Difference in years	3
Cost of Acquistion (COA)	180000
Salvage Value (SV)	10000
Useful Life in years	8
Double Declining Rate Calculation
Step 1: Straight-line Depreciation Rate	Depreciation Expense / Depreciable Base
Step 2: Double-declining Depreciation Rate	Straight-line Depreciation Rate x 2
Therefore,
Step 1: Straight-line Depreciation Rate	12.5% (100%/8)
Step 2: Double-declining Depreciation Rate	25% (12.5%*2)

Calculation of accumulated depreciation:

Year	Book Value of Asset at the start of the year (a)	Rate of declining Balance (b)	Depreciation Expense (c) = (a*b)	Accumulated Dep (d) = (d+c)	Book Value of Asset at the end of the year (e) = (a-c)
1	180000	25%	45000	45000	135000
2	135000	25%	33750	78750	101250
3	101250	25%	25313	104063	75938

Therefore Accumulated Dep as on 31 Dec 2017

104063

Machine 3	Units of Activity
Date of acquistion	11-Jan-17
Date as on accumulated dep	31-Dec-17
Cost of Acquistion (COA)	125000
Salvage Value (SV)	15000
Useful Life in years	6
Estimated total Machine hours during its useful life	25000
Actual hours of use in first year	2000
Depreciation under Units of Activity method	((COA-SV)/ Estimated machine hours)* Actual hours for respective period
i.e.	((125000-15000)/25000)*2000
i.e.	8800
Therefore Accumulated Dep as on 31 Dec 2017	8800

Part (b) :

As per table "Calculation of accumulated depreciation" in machine 2 above , the depreciation expense will remain same irrespective of change of dates. therefore dep expense for 2016 and 2017 is $33750 and $25313 respectively.