$25,000 3-2 the car was five years or 110,000 miles, and its salvage value was estimated to be $1,000. The car was Exercises 0-1 Accounting for the Acquisition of a Long-Term Asset Action Jackson Company acquired a new machine in order to expand its productive capacity. The costs 2 associated with the machine purchase were as follows: Purchase price 750 Installation costs 900 Cost of initial testing 1,563 Sales tax 1. Make the journal entry to record the acquisition of the machine. Assume that all costs were paid in cash. 2. Make the journal entry to record the acquisition of the machine. Assume that Action Jackson signed a note payable for the $25,000 purchase price and paid the remaining costs in cash. Computing Asset Cost 2 Moonlight Co. acquired a machine. The purchase price was NT$540,000. The installation costs were NT$1,000. The delivery cost was NT$1,400. Machine in transit incurred a repair cost of NT$400. Determine the cost of the machine. -3 Accounting for the Acquisition of Assets--Basket Purchase 2 Warbler Corporation purchased land, a building, and equipment for a total cost of $625,000. After the purchase, the property was appraised. Fair values were determined to be $245,000 for the land, $350,000 for the building, and $105,000 for the equipment. Given these appraisals, record the purchase of the property by Warbler. -4 Cost of Property, Plant, and Equipment Bandol Co. purchases a machine for $23,000, terms 2/10, n/60, FOB shipping point. The seller prepaid the $520 freight charges, adding the amount to the invoice and bringing its total to $23,520. The machine requires special steel mounting and power connections costing $1,592. Another $750 is paid to assemble the machine and get it into operation. In moving the machine to its steel mounting, $380 in damages occurred. Materials costing $60 are used in adjusting the machine to produce a satisfactory product. The adjustments are normal for this machine and are not the result of the damages. Compute the cost recorded for this machine. Assume Bandol pays for this machine within the cash discount period -5 Depreciation Calculations 3 Garns Photography Company purchased a new car on July 1, 2017, for $26,000. The estimated life of driven 9,000 miles in 2017 and 24,000 miles in 2018. Investments: Property, Plant, and Equipment and Intal 1. Compute the amount of depreciation expense for 2017 and 2018 using the following methods: Straight-line Units-of-production 2. Which depreciation method more closely reflects the used-up service potential of the car? Explain. a. b. Depreciation Calculations Denver Hardware Company has a giant paint mixer that cost $31,500 plus $400 to install. The estimated salvage value of the paint mixer at the end of its useful life in 15 years is estimated to be $1,900. Denver estimates that the machine can mix 850,000 cans of paint during its lifetime. Compute the second full year's depreciation expense, using the following methods: 1. Straight-line 2. Units-of-production, assuming that the machine mixes 51,000 cans of paint during the second year Depreciation Computations Borges Corporation purchases a $760,000 piece of equipment on January 2, 2017, for use in its manufacturing process. The equipment's estimated useful life is 10 years with no salvage value. Borges uses 150% declining-balance depreciation for all its equipment. 1. Compute the depreciation expense for 2017, 2018, and 2019. 2. Compute the carrying amount of the equipment on December 31, 2019. Depreciation Calculations On January 1, 2017, MAC Corporation purchased a machine for $60,000. The machine cost $800 to deliver and $2,000 to install. At the end of 10 years, MAC expects to sell the machine for $2,000. Compute depreciation expense for 2017 and 2018 using the following methods: 1. Double-declining-balance 2. 150% declining-balance Computing Asset Cost and Depreciation Expense Maximum Renovation Company decided to purchase a new carpet cutting machine for its shop in Los Angeles. After a long search, it found the appropriate machine in Chicago. The machine costs $32,000 and has an estimated 16-year life and no salvage value. Maximum made the following additional expenditures with respect to this purchase: Sales tax Delivery costs (FOB shipping point). Assembly cost... Painting of machine to match the decor $1,400 1,200 900 500 1. What is the cost of the machine to Maximum? 2. What is the amount of the first full year's depreciation if Maximum uses the straight-line method? Acquisition and Depreciation of Assets Vandre Oil Company, which prepares financial statements on a calendar-year basis, purchased new drilling equipment on July 1, 2018, using check numbers 1035 and 1036. The check totals are shown here, along with a breakdown of the charges. 1035 (Payee--Oil Equipment, Inc.): Cost of drilling equipment Cost of cement platform Installation charges Total $150,000 50,000 26,000 $226,000 1036 (Payee-Red Ball Freight); Freight costs for drilling equipment. $ 4,000 Assume that the estimated life of the drilling equipment is 10 years and its salvage value is $7,000. $125,000 35,000 22,000 3,000 $185,000 a. Added to the milling machine a governor costing $500, which is expected to increase the On January 1, 2017, Sobel Holding Corporation purchased a coal mine for cash, having taken into paid $1,125,000 for the mine. Shortly before the purchase, an engineer estimated that there were consideration the favorable tax consequences and the inevitable energy crunch in the future. Sohel Record the depletion expense for 2017, assuming that 40,000 tons of coal were mined during the peut Part 3 Investing and Financing Activities 1. Record the disbursements on July 1, 2018, assuming that no entry had been recorded for the drilling equipment. 2. Disregarding the information given about the two checks, assume that the drilling equipment was recorded at a total cost of $195,000. Calculate the depreciation expense for 2018 using the straight-line method. 1 Acquisition and Depreciation of Assets Brough Oil Company, which prepares financial statements on a calendar-year basis, purchased nex drilling equipment on July 1, 2018. A breakdown of the cost follows: Cost of drilling equipment Cost of cement platform Installation charges Freight costs for drilling equipment. Total Assuming that the estimated life of the drilling equipment is 20 years and its salvage value is $10,000: 1. Record the purchase on July 1, 2018. 2. Assume that the drilling equipment was recorded at a total cost of $140,000. Calculate the depreciation expense for 2018 using the following methods: Double-declining-balance b. 150% declining-balance Acquisition and Depreciation At the beginning of 2018, Beefs Steak House constructed a new walk-in freezer that had a useful life of 10 years. At the end of 10 years, the motor could be salvaged for $3,500. In addition to construction costs that totaled $15,000, the following costs were incurred: Sales taxes on components Delivery costs Installation of motor. Painting of both interior and exterior of freezer 1. What is the cost of the walk-in freezer to Beefs? 2. Compute the amount of depreciation to be taken in the first year assuming Beefs uses the double-declining-balance method. Acquisition and improvement of Assets 1. Purchased a milling machine to be used by the firm in its production process. Invoice price Cash discount taken Installation costs.. Sales tax on machine. 2. Performed normal periodic maintenance on the milling machine at a cost of $350 3. Accounting for Natural Resources 1. $1.100 700 300 200 Prepare entries in the books of Thinker , Inc., to reflect the following(Assume cash transactions) $35,000 700 1,600 1,750 E Lo machine's useful life. 180,000 tons of coal in the mine. Record the purchase of the mine on January 1, 2017 2. those two assets. The estimated value in use is $100,000. The net fair value of the land and building flows associated with the land and building are less than the recorded total carrying amount for impairment in value be recognized? Make the entry on January 1, 2018, to record the impairment of together is now only $120,000, of which $50,000 is land and $70,000 is the building. How should this On January 1, 2018, it is determined that there is toxic waste under the building and the future cash 3. 4. Assume that on January 1, 2018, the company received a new estimate that the mine now contained 215,000 tons of coal. Record the entry (if any) to show the change in estimate. Record the depletion expense for 2018, assuming that another 40,000 tons of coal were mined. Change in Estimated Useful Life On January 1, 2017, Landon Excavation Company purchased a new bulldozer for $120,000. The equipment had an estimated useful life of 10 years and an estimated residual value of $10,000. On January 2019, Landon determined that the bulldozer would have a total useful life of only 8 years instead of 10 years with no change in residual value. Landon uses straight-line depreciation. Compute depreciation expense on this bulldozer for 2017, 2018, and 2019. 2. Understanding Depreciation Concepts Maria Muchon has prepared the following list of statements about depreciation. 1. Depreciation is a process of asset valuation, not cost allocation. Three factors affect the computation of depreciation: cost, useful life, and residual value. 3. The book value of a plant asset should approximate its fair value. 4. Depreciation applies to three classes of plant assets: land, buildings, and equipment. 5. Depreciation does not apply to a building because its usefulness and revenue-producing ability generally remain intact over time. 6. Depreciation provides for the proper matching of expenses with revenues. 7. Recognizing depreciation on an asset results in an accumulation of cash for replacement of the asset. The revenue-producing ability of a depreciable asset will decline due to wear and tear and to obsolescence. 9. Depreciation expense and accumulated depreciation are reported on the income statement 10. The balance in accumulated depreciation represents the total cost that has been charged to expense. Identify each statement as true or false. If false, indicate how to correct the statement. Asset Impairment Consider the following three independent scenarios: 8. 1 2 3 Original cost of asset. Accumulated depreciation Value in use Net fair value of the asset $1,400 400 1,500 1,100 $1,400 400 1,500 800 $1,400 400 900 800 a. 1. For each of the three scenarios, answer the following questions: Is the asset impaired? b. At what amount (net of accumulated depreciation) should the asset be reported? 2. Make the journal entry required in Scenario 3. Asset Impairment was allocated to the land and $550,000 was allocated to the building. As of December 31, 2017, the In 2013, Yorkshire Company purchased land and a building at a cost of $700,000, of which $259,dhe accounting records related to these assets were as follows: Land. Building Accumulated Depreciation, Building $150,000 550,000 150,000 the land and building. original cost of Montaigne Delivery Company has a truck that it wants to sell. The truck had an $60,000, was purchased three years ago, and was expected to have a useful life of eight years with no Using straight-line depreciation and assuming that depreciation expense for three full years has been recorded, prepare journal entries to record the disposal of the truck under each of the following The machine needed extensive repairs, and it was not worth repairing. Interche disposed of the Record the amortization expense for both of these intangible assets for 2018 assuming neither of 2. Prepare the intangible assets section of the balance sheet for Cervantes as of December 31, 2018 Disposal of Assets salvage value independent conditions: 1. Montaigne sells the truck for $42,000 cash. 2. Montaigne sells the truck for $35,000 cash. 3. The old truck is wrecked and Montaigne hauls it to the junkyard. Disposal of an Asset Aeronautics Company purchased a machine for $115,000. The machine has an estimated useful life of eight years and a salvage value of $7,000. Journalize the disposal of the machine under each of the following conditions. (Assume straight-line depreciation.) 1. Sold the machine for $97,000 cash after two years. 2. Sold the machine for $36,000 cash after five years. Accounting for Disposal of Equipment Barbier Company owns equipment that cost $100,000 when purchased on January 1, 2015. It has been depreciated using the straight-line method based on estimated residual value of $16,000 and an estimated useful life of 5 years. Required: Prepare Barbier Company's journal entries to record the sale of the equipment in the following four independent situations, 1. Sold for $56,000 on January 1, 2018. 2. Sold for $56,000 on May 1, 2018. 3. Sold for $22,000 on January 1, 2018. 4. Sold for $22,000 on October 1, 2018. Disposal of Assets the following independent situations. 1. machine, receiving nothing in return. 2. Interche sold the machine for $35,000 cash. 3. Interche sold the machine for $68,000 cash. 4. Interche sold the machine for $80,000 cash. Accounting for intangible Assets Cervantes Labs, Inc., has the following intangible assets: Asset Date Purchased Goodwill Patent $ 26,000 January 1, 2009 182,000 January 1, 2011 1. the assets is impaired. Interche Company owns a milling machine that cost $250,000 and has accumulated depreciation of $182,000. Prepare the entry to record the disposal of the milling machine on January 5 under each of Cost Expected Useful or Legal Life Unlimited 20 years 1. 2. On January 1, 2018, Landon Company purchased a patent for $250,000 to allow it to improve its In addition, Fitzgerald's had sales of $3,650,000 in 2018. Cost of goods sold for the year was $2,300,000. Intangible Assets product line. On July 1, 2018, Landon purchased another existing business in a nearby city for a totas cost of $750,000. The market value of the land, building, equipment, and other tangible assets was $550,000. The excess $200,000 was recorded as goodwill. Assuming Landon amortizes patents over a 20-year period, record the following: The purchase of the patent on January 1, 2018. The amortization of the patent at December 31, 2018. 3. Under what conditions would goodwill be amortized on the books of Landon? Computing Goodwill Stringtown Company purchased Stansbury Island Manufacturing for 1,800,000 cash. The carrying amount and fair value of the assets of Stansbury as of the date of the acquisition are listed below. Carrying Market Amount Value 30,000 Cash 30,000 Accounts receivable 300,000 300,000 Inventory 350,000 600,000 Property, plant, and equipment. 500,000 900.000 Totals.. 1,180,000 1,830,000 In addition, Stansbury had liabilities totaling 400,000 at the time of the acquisition. 1. At what amounts will the individual assets of Stansbury be recorded on the books of Stringtown, the acquiring company? 2. How will Stringtown account for the liabilities of Stansbury? 3. How much goodwill will be recorded as part of this acquisition? Goodwill On January 1, 2018, Havel Company purchased Nantes Company at a price of $7,500,000. The fair market value of the net assets purchased equals $2,700,000. 1. What is the amount of goodwill that Havel records at the purchase date? 2. Explain how Havel would determine the amount of goodwill amortization on December 31, 2018. 3. Havel Company believes that its employees provide superior customer service, and through their efforts, Havel Company believes it has created $2,750,000 of goodwill. How would Havel Company record this goodwill? 2018 2017 $ 63,000 605,000 560,000 350,000 740,000 140,000 Fixed Asset Turnover Fitzgerald's Emporium reported the following asset values in 2017 and 2018. Cash Accounts receivable Inventory Land Buildings Equipment $ 48,000 490,000 520,000 310,000 680,000 120,000 Compute Fitzgerald's fixed asset turnover ratio for 2018