Financial Accounting: An Integrated Statements Approach, 2nd Edition

Chapter 9 Fixed Assets and Intangible Assets 433

Rhymer Company purchased plastic laminating equipment on July 1, 2005, for $174,000. The

equipment was expected to have a useful life of three years, or 14,025 operating hours, and a

residual value of $5,700. The equipment was used for 2,500 hours during 2005, 5,500 hours in

2006, 4,025 hours in 2007, and 2,000 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. Round to the nearest dollar.

New lithographic equipment, acquired at a cost of $100,000 at the beginning of a fiscal year, has

an estimated useful life of five years and an estimated residual value of $8,000. The manager re-

quested information regarding the effect of alternative methods on the amount of depreciation

expense each year.

Instructions

1. Determine the annual depreciation expense for each of the estimated five years of use, the ac-
   cumulated 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:

Depreciation Accumulated Depreciation, Book Value,

Year Expense End of Year End of Year

2. On the basis of the data presented to the manager, the declining-balance method was selected.
   In the first week of the fifth year, the equipment was sold for $24,000. Record the entry for
   the sale.


3. Record the entry for the sale, assuming a sales price of $8,000.

The following transactions, adjusting entries, and closing entries were completed by Lodge Pole

Pine Furniture Co. during a three-year period. All are related to the use of delivery equipment.

The straight-line method of depreciation is used.

2005

Jan. 3 Purchased a used delivery truck for $26,500, paying cash.

5 Paid $4,000 for a new transmission for the truck. (Debit Delivery Equipment)

Aug. 16 Paid garage $285 for miscellaneous repairs to the truck.

Dec. 31 Recorded depreciation on the truck for the fiscal year. The estimated useful life of the

truck is 4 years, with a residual value of $5,500.

2006

Jan. 1 Purchased a new truck for $65,000, paying cash.

June 30 Sold the used truck for $12,000. (Record depreciation to date in 2006 for the truck.)

Aug. 10 Paid garage $175 for miscellaneous repairs to the truck.

Dec. 31 Recorded depreciation on the truck. It has an estimated residual value of $7,500 and an

estimated life of 5 years.

2007

July 1 Purchased a new truck for $84,000, paying cash.

Oct. 1 Sold the truck purchased January 1, 2006, for $26,750. (Record depreciation for the year.)

Dec. 31 Recorded depreciation on the remaining truck. It has an estimated residual value of

$8,000 and an estimated useful life of 8 years.

Instructions

Record the transactions and the adjusting entries.

Alternate Problem
9-3B

Depreciation by three
methods; partial years

Goal 2

a. 2005; $28,050

Alternate Problem
9-4B

Depreciation by two methods;
sale of fixed asset

Goals2, 3

1. b. Year 1: $40,000
   depreciation expense

Alternate Problem
9-5B

Transactions for fixed assets,
including sale

Goals1, 3, 4

GENERAL LEDGER