E 9-1A.

Acquisition Cost of Long-Lived Assets

The following data relate to a firm's purchase of a machine used in the manufacture of its product:

Invoice price

$30,000

Applicable sales tax..

2,000

Cash discount taken for prompt payment..

400

Freight paid.

260

Cost of insurance coverage on machine while in transit

125

Installation costs.

3,000

Testing and adjusting costs.

475

Repair of damages to machine caused by the firm's employees..

750

Prepaid maintenance contract for first year of machine's use

300

Determine the acquision cost of the machine.

Answer:

E 9-2A.

Allocation of Package Purchase Price

Tamock Company purchased a plant from one of its suppliers. The $950,000 purchase price included the land, building, and factory machinery. Tamock also paid $6,000 in legal fees to negotiate the purchase of the plant. An appraisal showed the following values for the items purchased:

Property

Assessed Value

Percentage of Fair Value

Account Value

Land..

$126,000

Building.

456,000

Machinery

318,000

Total..

900,000

100%

Using the assessed value as a guide, allocate the total purchase price of the plant to the land, building, and machinery accounts in Tamock Company's Records.

E 9-3A.

Depreciation Methods

A delivery truck costing $20,000 is expected to have a $2,000 salvage value at the end of its useful life of four years of 100,000 miles. Assume that the truck was purchased on January 2. Calculate the depreciation expense for the second year using each of the following depreciation methods: (a) straight-line, (b) double-declining balance, and (c) units-of-production. (Assume that the truck was driven 30,000 miles in the second year.)

a.

Straight-line depreciation =

(Acquisition Cost - Salvage value)

=

Estimated useful life

b.

Double-declining depreciation =

Beginning of year book value X double-declining balance rate

Year 1 book value =

Double-declining balance rate =

Year 2 book value =

Year 2 depreciation expense =

c.

Depreciation per mile

Year 2 Miles Driven

Year 2 Depreciation

Units of production depreciation =

(Acquisition Cost - Salvage value)

=

X

=

Total estimated units of production