Financial Accounting: An Integrated Statements Approach, 2nd Edition

Chapter 9 Fixed Assets and Intangible Assets 425

a. Record the cost of the new alarm system enhancements on January 1, 2006.

b. Determine the total depreciation expense reported in the income statement in 2006 from

this transaction.

Northeast Railroad Company overhauled a diesel motor on one of its railroad engines at a cost

of $110,000 on June 30, 2006. The engine was purchased on January 1, 2000, for $280,000, with

an estimated original useful life of 20,000 hours and a residual value of $50,000. As of June 30,

2006, the engine had been used 15,000 hours since its original purchase. The overhaul increased

the remaining useful life of the engine to 24,000 hours with no change in residual value. After

the overhaul, the engine was used for 2,400 hours for the remainder of 2006.

a. Record the journal entry for the overhaul costs incurred during June 2006.

b. Record the journal entry for the depreciation expense on the overhauled engine for the

remainder of 2006.

c. Determine the book value of the engine on December 31, 2006.

On October 1, 2007, Tri-State Power Company added transmission lines costing $25,000 to im-

prove transmission capacity on a transmission system having a book value of $90,000. The trans-

mission system has 25 years of estimated remaining life with a $5,000 residual value on October 1.

In addition, on October 1, a generator with an original cost of $40,000 and accumulated depre-

ciation of $36,000 was overhauled at a cost of $20,000. The overhaul extended the remaining life

of the generator to 12 years with no residual value.

a. Record the journal entries on October 1 for the transmission system improvement and

generator extraordinary repair.

b. Record the adjusting journal entry on December 31 to record the depreciation expense for

the two fixed assets.

c. Determine the book value of the two fixed assets on December 31.

Convert each of the following estimates of useful life to a straight-line depreciation rate, stated

as a percentage, assuming that the residual value of the fixed asset is to be ignored: (a) 20 years,

(b) 25 years, (c) 40 years, (d) 4 years, (e) 5 years, (f) 10 years, (g) 50 years.

A refrigerator used by a meat processor has a cost of $312,000, an estimated residual value of

$42,000, and an estimated useful life of 15 years. What is the amount of the annual depreciation

computed by the straight-line method?

A diesel-powered generator with a cost of $345,000 and estimated residual value of $18,000 is

expected to have a useful operating life of 75,000 hours. During July, the generator was oper-

ated 1,250 hours. Determine the depreciation for the month using the units-of-production

method.

Prior to adjustment at the end of the year, the balance in Trucks is $182,600 and the balance in

Accumulated Depreciation—Trucks is $74,950. Details of the subsidiary ledger are as follows:

Exercise 9-12

Straight-line depreciation

Goal 2

$18,000

Exercise 9-13

Depreciation by units-
of-production method

Goal 2

$5,450

Exercise 9-14

Depreciation by units-of-

production method

Goal 2

Exercise 9-9

Fixed asset extraordinary
repair

Goal 1

c. $200,750

Exercise 9-10

Fixed asset improvement and
extraordinary repair

Goal 1

c. Transmission system,
$113,900

Exercise 9-11

Straight-line depreciation rates

Goal 2

a. 5%