Group Work Solutions for Chapter 8

1. Cost $62,000

Useful Life 5 years

Residual Value $8,000

Life in Miles 140,000

Actual Miles Yr 1 25,200

Actual Miles Yr 2 35,000

Dep Expense Yr 2 Book Value Yr 2

Straight Line

$ 10,800 $ 40,400

(62,000-8,000)/5yrs = $10,800 pr yr 62,000-(10,800+10,800)=$40,400

Units of Prod $13,500 $38,780

Yr 1 (62,000-8000)*(25,200/140,000)= $9,720

Yr 2 (62,000-8000)*(35,000/140,000)=$13,500 62,000-(9,720+13,500)=$38,780

DDB $14,880 $22,320

Yr 1 (62,000-0)*(2/5 or 40%)=24,800

Yr 2 (62,000-24,800)*(2/5 or 40%)=$14,880 62,000-(24,800+14,880)=$22,320

Accumulated Depreciation Balance at last year of asset’s life - $62,000 - $8,000 = $54,000

2. Accumulated Depreciation at January 1, 2016 $86,000

Depreciation Expense through May 2016 $ 5,200

Accumulated Depreciation at Date of Sale $91,200

Cost of Machine $100,000

Accumulated Depreciation $91,200

Book Value at Date of Sale $ 8,800

a) Fair Market Value $7,600 b) Fair Market Value $11,000

Book Value at Date of Sale $8,800 Book Value at Date of Sale $8,800

Loss on Sale of Asset ($1,200) Gain on Sale of Asset $2,200

a) Journal Entry

Cash 7,600

Accumulated Depreciation 91,200

Loss on Sale of Asset 1,200

Machine (Asset) 100,000

b) Journal Entry

Cash 11,000

Accumulated Depreciation 91,200

Machine (Asset) 100,000

Gain on Sale of Asset 2,200
3. Cost $95,000

Residual Value $15,000

Estimated Life 10 years

Change in Estimates at Beginning of Year 4 (After 3 years)

Residual Value $12,000

Estimated Live 8 years

Straight-Line Depreciation

1st Book Value at Date of Change

Depreciation Expense each Year ($95,000-15,000)/10 = $8,000 per year

Accumulated Depreciation after 3 years $8,000*3 = $24,000

Cost $95,000

Accumulated Depreciation ($24,000)

Book Value at Date of Change $71,000

2nd New Residual Value

Given $12,000

3rd Years Remaining in Life of Asset

Changes made at the beginning of year 4, 3 years of life have been used up.

New estimated life in years 8

Less Years Used Up (3)

Years Remaining 5

4th Depreciation Expense for Current and Future Years (Straight Line Depreciation)

($71,000-$12,000)/5=$11,800 per year in current and future years.