Cost of Fixed Assets

Mooney Sounds, a local stereo retailer, needed a new store because it had outgrown the leased space it had used for several years. Mooney acquired and remodeled a former grocery store. As a part of the acquisition, Mooney incurred the following costs:

Cost of grocery store $277,400

Cost of land (on which the grocery store is located) $83,580

New roof for building $74,000

Lumber used for remodeling $23,200

Paint $515

Wire and electrical supplies $4,290

New doors $6,400

New windows $3,850

Wages paid to workers for remodeling $12,500

Additional inventory purchased for grand opening sale $45,300

Required:

1.Determine the cost of the land and the building.

Land $

Building $

Depreciation Methods

Clearcopy, a printing company, acquired a new press on January 1, 2013. The press cost $173,400 and had an expected life of 8 years or 4,500,000 pages and an expected residual value of $15,000. Clear copy printed 675,000 pages in 2013.

Required:

1.Compute 2013 depreciation expense using the:

2013

a. Straight-line method $

b. Double-declining-balance method $

c. Units-of-production method $

2.What is the book value of the machine at the end of 2013 under each method?

Book Value

a. Straight-line method $

b. Double-declining-balance method $

c. Units-of-production method $

Revision of Depreciation

On January 1, 2011, Blizzards-R-Us purchased a snow-blowing machine for $125,000. The machine was expected to have a residual value of $12,000 at the end of its 5-year useful life. On January 1, 2013, Blizzards-R-Us concluded that the machine would have a remaining useful life of 6 years with a residual value of $3,600.

Required:

1.Determine the revised annual depreciation expense for 2013 using the straight-line method.

$

Disposal of Fixed Asset

Perfect Auto Rentals sold one of its cars on January 1, 2013. Perfect had acquired the car on January 1, 2011, for $23,400. At acquisition Perfect assumed that the car would have an estimated life of 3 years and a residual value of $3,000. Assume that Perfect has recorded straight-line depreciation expense for 2011 and 2012.

Required:

1.Prepare the journal entry to record the sale of the car assuming the car sold for (a) $9,800 cash, (b) $7,500 cash, and (c) $11,500 cash. The company recorded the car as equipment. If no entry is required, leave the answer boxes blank.

a. 1

2

3

Record sale of car

b. 1

2

3

4

Record sale of car

c.

1

2

3

4

Record sale of car

Amortization of Intangibles

On January 1, 2013, Boulder Investments Inc. acquired a franchise to operate a Burger Doodle restaurant. Boulder paid $225,000 for a 10-year franchise and incurred organization costs of $15,000.

Required:

1.Prepare the journal entry to record the cash payment for the franchise fee and the organization costs.

2013 Jan 1 a

b

Record purchase of franchise

2013 Jan 1

a

b

Record organizational costs

2013 Dec. 31 2. Prepare the journal entry to record the annual amortization expense at the end of the first year.

a

b

Record amortization of franchise