Chapter 10 Plant Assets, Natural Resources, and Intangibles
QUCIK STUDY
QS 10-3
On January 2, 2009, the Deadra Band acquires sound equipment for concert performances at a cost of $32,500. The band estimates it will use this equipment for four years, during which time it anticipates performing about 200 concerts. It estimates that after four years it can sell the equipment for $2,500. During year 2009, the band performs 47 concerts. Compute the year 2009 depreciation using the straight-line method.
QS 10-6
A fleet of refrigerated delivery trucks is acquired on January 5, 2009, at a cost of $1,200,000 with an estimated useful life of eight years and an estimated salvage value of $100,000. Compute the depreciation expense for the first three years using the double-decline method.
QS 10-7
1. Classify the following as either revenue or capital expenditures.
a.Paid $40,000 cash to replace a compressor on a refrigeration system that extends its useful life by four years.
b.Paid $200 cash per truck for the cost of their annual tune-ups.
c.Paid $175 for monthly cost of replacement filters on an air-conditioning system.
d.Completed an addition to an office building for $225,000 cash.
2. Prepare the journal entries to record transactions a and d of part 1.
QS 10-8
Tresler Co. owns equipment that cost $92,500, which accumulated depreciation of $54,000. Tresler sells the equipment for cash. Record the sales of the equipment for (1)$42,000 cash, (2) $38,500 cash, and (3) $31,000 cash.
EXERCISES
Exercises 10-3
Dillon Company pays $404,000 for real estate plus $21,500 in closing costs. The real estate consists of land appraised at $217,140; land improvements appraised at $83,160; and a building appraised at $161,700. Allocate the local cost among the three purchased assets and prepare the journal entry to record the purchase.
Exercises 10-4
In early January 2009, Sanchez Builders purchases equipment for $102,000 to use in operating activities for the next five years. It estimates the equipment's salvage value at $21,000. Prepare a table showing depreciation and book value for each of the five years assuming straight-line depreciation.
Exercises 10-5
Refer to the information in Exercises 10-4. Prepare a table showing depreciation and book value for each of the five years assuming double-declining-balance depreciation.
Exercises 10-6
Siness Fitness Club uses straight-line depreciation for a machine costing $26,400, with an estimated four-year life and a $2,900 salvage value. At the beginning of the third year, Siness determines that the machine has three more years of remaining useful life, after which it will have an estimated $2,050 salvage value. Compute (1) the machine's book value at the end of its second year and (2) the amount of depreciation for each of the final three years given the revised estimated.
Exercises 10-7
Echo Enterprises pays $274,900 for equipment that will last five years and have a $41,000 salvage value. By using the equipment in its operations for five years, the company expects to earn $86,000 annually, after deducting all expenses expect depreciation. Prepare a table showing income before depreciation, depreciation expense, and net (pretax) income for each year and for the total five-year period, assuming straight-line depreciation.
Exercises 10-8
Refer to the information in Exercises 10-7. Prepare a table showing income before depreciation, depreciation expense, and net (pretax) income for each year and for the total five-year period, assuming double-declining-balance depreciation is used.
Exercises 10-9
Horizon Company owns a building that appears on its prior year-end balance sheet at its original $620,000 cost less $496,000 accumulated depreciation. The building is depreciated on a straight-line basis assuming a 20-year life and no salvage value. During the first week in January of the recent calendar year, major structural repairs are completed on the building at $74,000 cost. The repairs extend its useful life for 7 years beyond the 20 years originally estimated.
- Determine the building's age (plant asset age) as of the prior year-end balance sheet date.
- Prepare the entry to record the cost of the structural repairs that are paid in cash.
- Determine the book value of the building immediately after the repairs are recorded.
- Prepare the entry to record the current calendar year's depreciation.
PROBLEM
Problem 10-2A
Maxil Contractors completed the following transactions and events involving the purchase and operation of equipment in its business.
2008
Jan. 1 Paid $293,660 cash plus $11,740 in sales tax and $1,500 in transportation (FOB shipping point) for a new loader. The loader is estimated to have a four-year life and a $36,000 salvage value. Loader costs are recorded in the Equipment account.
Jan. 3 Paid $5,100 to enclose the cab and install air condition in the loader to enable operations under harsher conditions. This increased the estimated salvage value of the loader by another $1,000.
Dec. 31 Recorded annual straight-line depreciation on the loader.
2009
Jan. 1 Paid $4,500 to overhaul the loader's engine, which increased the loader's estimated useful life by two years.
Feb. 17 Paid $1,125 to repair the loader after the operator backed it into a tree.
Dec. 31 Recorded annul straight-line depreciation on the loader.
Required
Prepare journal entries to recorded these transactions and events.