ACCT 210 Problems PPE, Fall 2014

27) Sullivan Sales purchased a machine on January 1, 2013 which cost $450,000, had a residual value of $50,000 and a useful life of 10 years. Sullivan Sales can replace this machine with one that is more efficient and sells the old machine for $100,000 on July 1, 2015. Required: Prepare the appropriate journal entry to record the sale of this machine, assuming the company uses the double-declining-balance method of depreciation. Answer: Year Book Value Beginning of Year Rate Annual Depreciation Accumulated Depreciation Book Value End of Year 450,000 2013 450,000 20% 90,000 90,000 360,000 2014 360,000 20% 72,000 162,000 288,000 2015 288,000 20% 28,800 190,800 259,200 Date Account Debit Credit July 1, 2015 Cash 100,000 Accumulated Depreciation 190,800 Loss on Sale of Machine 159,200 Machine 450,000 28) A computer, with a cost of $10,000 is sold on July 1. Accumulated depreciation up to the date of sale is $5,000. Journalize the entries for the disposal of the computer under the following INDEPENDENT scenarios: 1. The computer was sold for $6,000. 2. The computer was sold for $1,000. 3. The computer is obsolete and was thrown in the trash. Answer: Date Account DR CR 1. Cash 6,000 Accumulated Depreciation 5,000 Gain on Sale of Computer 1,000 Computer 10,000 Book value = $10,000 - $5,000 = $5,000 Cash Received - Book Value = Gain/Loss $6,000 - $5,000 = $1,000 gain 2. Cash 1,000 Accumulated Depreciation 5,000 Loss on Sale of Computer 4,000 Computer 10,000 Book value = $10,000 - $5,000 = $5,000 Cash Received - Book Value = Gain/Loss $1,000 - $5,000 = $4,000 Loss 3. Accumulated Depreciation 5,000 Loss on Disposal of Computer 5,000 Computer 10,000 Book Value = $10,000 - $5,000 = $5,000 Cash Received - Book Value = Gain/Loss 0 - $5,000 = $5,000 Loss 53) A machine costing $40,000 was purchased on January 1, 2014. It has an estimated useful life of 5 years and a salvage value of $5,000. Required: 1. Calculate depreciation expense for 2014 and 2015 using (a) straight-line rate, and (b) double- declining balance method. 2. Determine the book value of the machine at December 31, 2015 under the (a) straight-line method and (b) double-declining balance method. Answer: 1. a. Straight-line: Depreciation Expense for 2014 and 2015: ($40,000 - $5,000) ÷ 5 = $7,000 b. Double-declining balance: Depreciation Expense for 2014: $40,000 × 40% = $16,000 Depreciation Expense for 2015: ($40,000 - $16,000) × 40% = $9,600 2. (a) Straight-line: Book value = cost - accumulated depreciation Book value at 12/31/2015 = $40,000 - ($7,000 + $7,000) = $26,000 (b) Double-declining balance: Book value = cost - accumulated depreciation Book value at 12/31/2015 = $40,000 - ($16,000 + $9,600) = $14,400 54) A plant asset is acquired by a business on January 1, 2014, for $100,000. The asset's estimated residual value is $10,000 and its estimated life is 5 years. Management chooses to use straight-line depreciation. On January 1, 2016, management revises the total useful life to 8 years and the residual value to $5,000. Required: 1. Compute the balance in Accumulated Depreciation on January 1, 2016. 2. Compute the Depreciation Expense for the year ending December 31, 2016. 3. Compute the balance in Accumulated Depreciation on December 31, 2016. 4. Prepare the adjusting journal entry on December 31, 2016 for the year. Omit the explanation. Answer: 1. ($100,000 - $10,000) ÷ 5 = $18,000 $18,000 × 2 = $36,000 2. ($100,000 - $36,000 - $5,000) ÷ 6 = $9,833 3. $36,000 + $9,833 = $45,833 4. ACCOUNT DEBIT CREDIT Depreciation Expense 9,833 Accumulated Depreciation 9,833 55) On January 1, 2015, Williams Company, Inc. purchased machinery for $350,000 and depreciated it on a straight-line basis over 20 years. The estimated residual value was zero. On January 1, 2018, the company realized the machine will remain useful for only 5 more years and also revised the residual value to $12,000. Required: 1. What is the depreciation expense per year before the change in estimate? 2. What is the revised depreciation expense per year? 3. Prepare the adjusting journal entry for the year ending December 31, 2018. Omit the explanation. Answer: 1. Depreciation Expense: Original calculation: ($350,000 - 0) ÷ 20 = $17,500 per year $17,500 × 3 = $52,500 Accumulated Depreciation 2. Revised depreciation expense: ($350,000 - $52,500 - $12,000) ÷ 5 = $57,100 3. ACCOUNTS DEBIT CREDIT Depreciation Expense 57,100 Accumulated Depreciation 57,100