Financial Accounting: An Integrated Statements Approach, 2nd Edition

p. Interest incurred on building loan during construction $ 65,000

q. Money borrowed to pay building contractor 1,000,000*

r. Payment to building contractor for new building 1,250,000

s. Refund of premium on insurance policy (i) canceled after 10 months 1,200*

Instructions

1. Assign each payment and receipt to Land (unlimited life), Land Improvements (limited life),
   Building, or Other Accounts. Indicate receipts by an asterisk. Identify each item by letter
   and list the amounts in columnar form, as follows:

Land Other

Item Land Improvements Building Accounts

2. Determine the amount debited to Land, Land Improvements, and Building.


3. The costs assigned to the land, which is used as a plant site, will not be depreciated, while
   the costs assigned to land improvements will be depreciated. Explain this seemingly con-
   tradictory application of the concept of depreciation.

Cero Company purchased waterproofing equipment on January 2, 2005, for $214,000. The equip-

ment was expected to have a useful life of four years, or 31,250 operating hours, and a residual

value of $14,000. The equipment was used for 10,750 hours during 2005, 9,500 hours in 2006,

6,000 hours in 2007, and 5,000 hours in 2008.

Instructions

Determine the amount of depreciation expense for the years ended December 31, 2005, 2006,

2007 and 2008, by (a) the straight-line method, (b) the units-of-production method, and (c) the

declining-balance method, using twice the straight-line rate. Also determine the total deprecia-

tion expense for the four years by each method. The following columnar headings are suggested

for recording the depreciation expense amounts:

Depreciation Expense

Straight-Line Units-of- Declining-

Year Method Production Method Balance Method

Caribou Company purchased tool sharpening equipment on July 1, 2005, for $194,400. The

equipment was expected to have a useful life of three years, or 22,950 operating hours, and a

residual value of $10,800. The equipment was used for 4,650 hours during 2005, 7,500 hours in

2006, 7,350 hours in 2007, and 3,450 hours in 2008.

Instructions

Determine the amount of depreciation expense for the years ended December 31, 2005, 2006,

2007, and 2008, by (a) the straight-line method, (b) the units-of-production method, and (c) the

declining-balance method, using twice the straight-line rate.

New tire retreading equipment, acquired at a cost of $160,000 at the beginning of a fiscal year,

has an estimated useful life of four years and an estimated residual value of $16,000. The man-

ager requested information regarding the effect of alternative methods on the amount of depre-

ciation expense each year.

Instructions

1. Determine the annual depreciation expense for each of the estimated four years of use, the
   accumulated depreciation at the end of each year, and the book value of the equipment at the
   end of each year by (a) the straight-line method and (b) the declining-balance method (at twice
   the straight-line rate). The following columnar headings are suggested for each schedule:

430 Chapter 9 Fixed Assets and Intangible Assets

Problem 9-2A

Compare three depreciation

methods

Goal 2

a. 2005: straight-line

depreciation, $50,000

Problem 9-3A

Depreciation by three meth-

ods; partial years

Goal 2

a. 2005, $30,600

Problem 9-4A

Depreciation by two methods;

sale of fixed asset

Goals2, 3

1. b. Year 1, $80,000
   depreciation expense