Solution Manual For
Accounting Principles, Volume 2, 10th Canadian Edition Jerry J. Weygandt,
Paul D. Kimmel, Jill E. Mitchell, Valerie Warren, Lori Novak
Chapter 9-18
CHAPTER 9
Long-Lived Assets
Learning Objectives
1. Calculate the cost of property, plant, and equipment.
2. Apply depreciation methods to property, plant, and
equipment.
3. Explain the factors that cause changes in periodic
depreciation and calculate revised depreciation for property,
plant, and equipment.
4. Demonstrate how to account for property, plant, and
equipment disposals.
5. Record natural resource transactions and compute depletion.
6. Identify the basic accounting issues for intangible assets and
goodwill.
7. Illustrate the reporting and analysis of long-lived assets.
,Summary of Questions by Learning Objectives and Bloom‘s Taxonomy
Item LO BT Item LO BT Item LO BT Item LO BT Item LO BT
Questions
1. 1 K 6. 2 C 11. 3 C 16. 4 K 21. 6 C
2. 1 K 7. 2 K 12. 3 K 17. 4 C 22. 6 C
3. 1 C 8. 2 C 13. 3 C 18. 5 K 23. 7 K
4. 1 C 9. 2,3 K 14. 4 C 19. 5 C 24. 7 C
5. 1 C 10. 3 C 15. 4 C 20. 6 C
Brief Exercises
1. 1 AP 6. 2 AP 11. 3 AP 16. 5 AP 21. 7 AN
2. 1 AP 7. 2 AP 12. 3 AP 17. 5,7 AP
3. 1 K 8. 2 AP 13. 4 AP 18. 6 AP
4. 1 AP 9. 2 AP 14. 4 AP 19. 6,7 AP
5. 2 AP 10. 2 AP 15. 4 AP 20 7 AP
Exercises
1. 1 AP 5. 2 AP 9. 3 AP 13. 5 AP 17 2,7 AP
2. 1,2 AP 6. 2 AP 10. 3 AP 14. 1,2,6 AP 18. 7 AN
3. 1,2 C 7. 2 AP 11. 4 AP 15. 6 AP
4. 2 AP 8 3 AP 12. 4 AP 16. 6 AP
Problems
1. 1 AP 4. 1,3 AP 7. 1,2,3,4 AP 10. 2,4,7 AP 13. 3,5,7 AP
2. 1,2 AP 5. 2 AP 8. 2,4 AP 11. 6 AP 14. 7 AN
3. 1,2 AP 6. 3 AP 9. 2,4 AP 12. 6,7 AP
Legend: The following abbreviations will appear throughout the solutions
manual file.
LO Learning objective
Bloom's
BT Taxonomy
K Knowledge
C Comprehension
AP Application
AN Analysis
S Synthesis
E Evaluation
Difficulty: Level of difficulty
, S Simple
M Moderate
C Complex
Time: Estimated time to complete in minutes
AACSB Association to Advance Collegiate Schools of Business
Communication Communication
Ethics Ethics
Analytic Analytic
Tech. Technology
Diversity Diversity
Reflec. Thinking Reflective Thinking
CPA CM CPA Canada Competency Map
Ethics Professional and Ethical Behaviour
PS and DM Problem-Solving and Decision-Making
Comm. Communication
Self-Mgt. Self-Management
Team & Lead Teamwork and Leadership
Reporting Financial Reporting
Stat. & Gov. Strategy and Governance
Mgt. Accounting Management Accounting
Audit Audit and Assurance
Finance Finance
Tax Taxation
ASSIGNMENT CLASSIFICATION TABLE
Brief Problems Problems
Questions Exercises Exercises Set A Set B
Learning Objectives
1. Calculate the cost of 1, 2, 3, 4, 1, 2, 3, 4 1, 2, 3, 12 1, 2, 3, 4, 1, 2, 3, 4,
property, plant, and 5 7 7
equipment.
2. Apply depreciation methods 6, 7, 8, 9, 5, 6, 7, 8, 2, 3, 4, 5, 2, 3, 5, 7, 2, 3, 5, 7,
to property, plant, and 9, 10 6, 7, 14, 8, 9, 10 8, 9, 10,
equipment. 17 13
3. Explain the factors that cause 9, 10, 11, 11, 12 8, 9, 10 4, 6, 7, 13 4, 6, 7
changes in periodic 12, 13,
depreciation and calculate
revised depreciation for
property, plant, and
equipment.
,4. Demonstrate how to account 14, 15, 13, 14, 15 11, 12 7, 8, 9, 7, 8, 9,
for property, plant, and 16, 17, 10 10
equipment disposals.
5. Record natural resource 18, 19, 20 16, 17 13 13 13
transactions and calculate
depletion.
6. Identify the basic accounting 21, 22 18, 19 14, 15, 16 11, 12 11, 12
issues for intangible assets
and goodwill.
7. Illustrate the reporting and 23, 24 17, 19, 20, 17, 18 10, 12, 10, 12,
analysis of long-lived assets. 21 13, 14 13, 14
ASSIGNMENT CHARACTERISTICS TABLE
Problem Difficulty Time
Number Description Level Allotted (min.)
1A Record property transactions. Simple 20-30
2A Allocate cost and calculate partial period depreciation. Moderate 20-30
3A Determine cost; calculate and compare depreciation under Moderate 30-40
different methods.
4A Account for operating and capital expenditures and asset Moderate 20-30
impairments.
5A Calculate and compare depreciation using three methods. Moderate 30-40
6A Record impairment and calculate revised depreciation. Moderate 20-30
7A Record acquisition, depreciation, impairment, and disposal of Moderate 25-35
land and building.
8A Calculate and compare depreciation and gain or loss on Moderate 30-40
disposal under three methods of depreciation.
9A Record acquisition, depreciation, and disposal of equipment. Moderate 30-40
10A Record property, plant, and equipment transactions; prepare Complex 40-50
partial financial statements.
11A Correct errors in recording intangible asset transactions. Complex 15-20
12A Record intangible asset transactions; prepare partial balance Moderate 30-40
sheet.
,Problem Difficulty Time
Number Description Level Allotted (min.)
13A Record natural resource transactions; prepare partial financial Moderate 25-30
statements.
14A Calculate ratios and comment. Moderate 15-25
1B Record property transactions. Simple 20-30
2B Allocate cost and calculate partial period depreciation. Moderate 20-30
3B Determine cost; calculate and compare depreciation under Moderate 30-40
different methods.
4B Account for operating and capital expenditures and asset Moderate 20-30
impairments.
5B Calculate and compare depreciation using three methods. Moderate 30-40
6B Record impairment and calculate revised depreciation. Moderate 20-30
ASSIGNMENT CHARACTERISTICS TABLE (Continued)
Problem Difficulty Time
Number Description Level Allotted (min.)
7B Record acquisition, depreciation, impairment, and disposal of Moderate 25-35
equipment.
8B Calculate and compare depreciation and gain or loss on Moderate 30-40
disposal under three methods of depreciation.
9B Record acquisition, depreciation, and disposal of furniture. Moderate 30-40
10B Record property, plant, and equipment transactions; prepare Complex 40-50
partial financial statements.
11B Correct errors in recording intangible asset transactions. Complex 15-20
12B Record intangible asset transactions; prepare partial balance Moderate 30-40
sheet.
13B Record equipment, note payable, and natural resource Moderate 25-30
transactions; prepare partial financial statements.
14B Calculate ratios and comment. Moderate 15-25
,BLOOM‘S TAXONOMY TABLE
Correlation Chart between Bloom's Taxonomy, Study Objectives and End-of-
Chapter Exercises and Problems
Learning Objective Knowledge Comprehension Application Analysis Synthesis Evaluation
1. Calculate the cost of Q9.1 Q9.3 BE9.1 P9.2A
property, plant, and Q9.2 Q9.4 BE9.2 P9.3A
equipment. BE9.3 Q9.5 BE9.4 P9.4A
E9.3 E9.1 P9.7A
E9.2 P9.1B
E9.14 P9.2B
P9.1A P9.3B
P9.4B
P9.7B
2. Apply depreciation Q9.7 Q9.6 BE9.5 P9.3A
methods to property, Q9.9 Q9.8 BE9.6 P9.5A
plant, and equipment. Q9.10 BE9.7 P9.7A
Q9.11 BE9.8 P9.8A
E9.3 BE9.9 P9.9A
BE9.10 P9.10A
E9.2 P9.2B
E9.4 P9.3B
E9.5 P9.5B
E9.6 P9.7B
E9.7 P9.8B
E9.14 P9.9B
E9.17 P9.10B
P9.2A P9.13B
3. Explain the factors Q9.9 Q9.10 BE9.11 P9.6A
that cause changes in Q9.12 Q9.11 BE9.12 P9.7A
periodic depreciation Q9.13 E9.8 P9.13A
and calculate revised E9.9 P9.4B
depreciation for E9.10 P9.6B
property, plant, and P9.4A P9.7B
equipment.
4. Demonstrate how to Q9.16 Q9.14 BE9.13 P9.9A
account for property, Q9.15 BE9.14 P9.10A
plant, and equipment Q9.17 BE9.15 P9.7B
disposals. E9.11 P9.8B
E9.12 P9.9B
P9.7A P9.10B
P9.8A
5. Record natural Q9.18 Q9.19 BE9.16 P9.13A
resource transactions Q9.20 BE9.17 P9.13B
and calculate E9.13
depletion.
6. Identify the basic Q9.21 BE9.18 P9.11A
accounting issues for Q9.22 BE9-19 P9.12A
intangible assets and E9.14 P9.11B
goodwill. E9.15 P9.12B
E9.16
,BLOOM‘S TAXONOMY TABLE (Continued)
Learning Objective Knowledge Comprehension Application Analysis Synthesis Evaluation
7. Illustrate the reporting Q9.23 Q9.24 BE9.17 P9.12A E9.18
and analysis of long- BE9.17 BE9.19 P9.13A P9.14A
lived assets. BE9.20 P9.12B P9.14B
BE9.21 P9.13B
E9.17
P9.10A
P9.10B
Broadening Your BYP9.4 BYP9.5
a
Perspective BYP9.1 BYP9.2
BYP9.3 BYP9.6
ANSWERS TO QUESTIONS
1. Three characteristics of property, plant, and equipment include: they (1)
have a physical substance (a definite size and shape), (2) are used in the
operations of the business, and (3) are not intended for sale to customers.
LO 1 BT: K Difficulty: S Time: 5 min. AACSB: None CPA: cpa-t001 CM: Reporting
2. Examples of land improvements are a road, driveway, sidewalk or parking
lot on the property, fencing, or an underground sprinkler system.
LO 1 BT: K Difficulty: S Time: 5 min. AACSB: None CPA: cpa-t001 CM: Reporting
3. The invoice cost, the cost of the safety inspection, and the cost for the
logo to be painted on the vehicle are capitalized, as they are required
costs to put the vehicle into use. The insurance costs benefit the business
for the term of the policy and so the costs should be allocated to the
period of benefit from the policy, typically by initially recording the payment
as prepaid insurance and then reducing the prepayment, charging
insurance expense as the policy expires.
LO 1 BT: C Difficulty: M Time: 5 min. AACSB: None CPA: cpa-t001 CM: Reporting
4. The purpose of depreciation is not to accumulate the cash needed to
replace an asset. Rather, depreciation is a cost allocation method, which
records an expense in those accounting periods where the asset has been
used and has contributed to the earning of revenues. This charge also
reduces the carrying amount of the asset, but it does not involve any cash.
LO 1 BT: C Difficulty: M Time: 5 min. AACSB: None CPA: cpa-t001 CM: Reporting
,5. The purchase cost must be split between the land and building because
the building is depreciated and the land is not. In addition, the cost of each
item will be needed to determine any gain or loss on disposal if either one
is later sold.
LO 1 BT: C Difficulty: M Time: 5 min. AACSB: None CPA: cpa-t001 CM: Reporting
,QUESTIONS (Continued)
6. Residual value is the estimated amount that a company would obtain from
disposing of a long-lived asset at the end of its useful life. Residual value
is not depreciated, since the amount is expected to be recovered at the
end of the asset’s useful life. Residual value is used in the formula for
calculating periodic depreciation using the straight line and unit-of-
production methods. Residual value is used in an indirect way in the
diminishing balance method. Rather than using residual value to reduce
the depreciable amount, as is done using the other two methods, the total
amount of depreciation recorded is limited to the amount that will cause
the carrying amount to equal the residual value of the asset.
LO 1 BT: C Difficulty: M Time: 5 min. AACSB: None CPA: cpa-t001 CM: Reporting
7. The three factors that affect the calculation of depreciation include cost,
useful life, and residual value. The cost of a depreciable asset must
include all necessary costs to get the asset ready for use. The useful life is
the period of time an asset is expected to be available for use. This length
may be measured as a function of time or number of units of production.
The residual value is the estimated amount that a company would obtain
from disposing of the asset at the end of its useful life.
LO 2 BT: K Difficulty: M Time: 5 min. AACSB: None CPA: cpa-t001 CM: Reporting
8. The amount of annual depreciation is different over the useful life of an
asset depending on which of the three depreciation methods are being
used. The straight-line method creates a constant amount of depreciation
over the useful life. The diminishing-balance method is devised to charge
a higher amount of depreciation in the earlier part of the useful life of the
asset. Lastly, the unit-of-production method is less predictable in that it is
based on the amount of use that is being made of the asset in each period
.
LO 2 BT: C Difficulty: M Time: 5 min. AACSB: None CPA: cpa-t001 CM: Reporting
9. A company should choose the depreciation method it believes will best
reflect the pattern over which the asset’s future economic benefits are
expected to be consumed. The depreciation method must be revised if the
expected pattern of consumption of the future economic benefits has
changed.
LO 2,3 BT: K Difficulty: M Time: 5 min. AACSB: None CPA: cpa-t001 CM: Reporting
, QUESTIONS (Continued)
10. Operating expenditures are ordinary repairs made to maintain the
operating efficiency and expected productive life of the asset. Because
they are recurring expenditures and normally benefit only the current
accounting period, they are expensed when incurred. Capital expenditures
are additions and improvements made to increase efficiency, productivity,
or expected useful life of the asset. Because they benefit future periods,
capital expenditures are debited to the asset account affected. Once
capitalized, these expenditures are depreciated over their benefiting
period.
LO 3 BT: C Difficulty: M Time: 5 min. AACSB: None CPA: cpa-t001 CM: Reporting
11. Revision of depreciation generally occurs when there is a change to any of
the three factors that affect the calculation of depreciation: the asset’s
cost, useful life, or residual value. Depreciation needs to be revised if
there are capital expenditures, impairments in the asset’s recoverable
amount, changes in the depreciation method, or changes in the estimated
remaining useful life or residual value. The revisions are based on new
information that will affect only current and future periods, so there is no
revision of depreciation previously recorded.
LO 3 BT: C Difficulty: M Time: 5 min. AACSB: None CPA: cpa-t001 CM: Reporting
12. Factors that may contribute to an impairment loss include obsolescence of
a piece of equipment, loss of a market for a product manufactured,
bankruptcy of the supplier of replacement parts for equipment, or
environmental concerns causing extra costs of disposal at the end of the
useful life.
LO 3 BT: K Difficulty: M Time: 5 min. AACSB: None CPA: cpa-t001 CM: Reporting
13. Extending the total service life and consequently the estimated remaining
useful life of a depreciable asset will reduce the amount of depreciation
recorded in each of the remaining five years of use. The carrying amount
of the asset will become the new basis to which the business will apply the
formula of the depreciation method. The residual value may also be
revised.
LO 3 BT: C Difficulty: M Time: 5 min. AACSB: None CPA: cpa-t001 CM: Reporting
Accounting Principles, Volume 2, 10th Canadian Edition Jerry J. Weygandt,
Paul D. Kimmel, Jill E. Mitchell, Valerie Warren, Lori Novak
Chapter 9-18
CHAPTER 9
Long-Lived Assets
Learning Objectives
1. Calculate the cost of property, plant, and equipment.
2. Apply depreciation methods to property, plant, and
equipment.
3. Explain the factors that cause changes in periodic
depreciation and calculate revised depreciation for property,
plant, and equipment.
4. Demonstrate how to account for property, plant, and
equipment disposals.
5. Record natural resource transactions and compute depletion.
6. Identify the basic accounting issues for intangible assets and
goodwill.
7. Illustrate the reporting and analysis of long-lived assets.
,Summary of Questions by Learning Objectives and Bloom‘s Taxonomy
Item LO BT Item LO BT Item LO BT Item LO BT Item LO BT
Questions
1. 1 K 6. 2 C 11. 3 C 16. 4 K 21. 6 C
2. 1 K 7. 2 K 12. 3 K 17. 4 C 22. 6 C
3. 1 C 8. 2 C 13. 3 C 18. 5 K 23. 7 K
4. 1 C 9. 2,3 K 14. 4 C 19. 5 C 24. 7 C
5. 1 C 10. 3 C 15. 4 C 20. 6 C
Brief Exercises
1. 1 AP 6. 2 AP 11. 3 AP 16. 5 AP 21. 7 AN
2. 1 AP 7. 2 AP 12. 3 AP 17. 5,7 AP
3. 1 K 8. 2 AP 13. 4 AP 18. 6 AP
4. 1 AP 9. 2 AP 14. 4 AP 19. 6,7 AP
5. 2 AP 10. 2 AP 15. 4 AP 20 7 AP
Exercises
1. 1 AP 5. 2 AP 9. 3 AP 13. 5 AP 17 2,7 AP
2. 1,2 AP 6. 2 AP 10. 3 AP 14. 1,2,6 AP 18. 7 AN
3. 1,2 C 7. 2 AP 11. 4 AP 15. 6 AP
4. 2 AP 8 3 AP 12. 4 AP 16. 6 AP
Problems
1. 1 AP 4. 1,3 AP 7. 1,2,3,4 AP 10. 2,4,7 AP 13. 3,5,7 AP
2. 1,2 AP 5. 2 AP 8. 2,4 AP 11. 6 AP 14. 7 AN
3. 1,2 AP 6. 3 AP 9. 2,4 AP 12. 6,7 AP
Legend: The following abbreviations will appear throughout the solutions
manual file.
LO Learning objective
Bloom's
BT Taxonomy
K Knowledge
C Comprehension
AP Application
AN Analysis
S Synthesis
E Evaluation
Difficulty: Level of difficulty
, S Simple
M Moderate
C Complex
Time: Estimated time to complete in minutes
AACSB Association to Advance Collegiate Schools of Business
Communication Communication
Ethics Ethics
Analytic Analytic
Tech. Technology
Diversity Diversity
Reflec. Thinking Reflective Thinking
CPA CM CPA Canada Competency Map
Ethics Professional and Ethical Behaviour
PS and DM Problem-Solving and Decision-Making
Comm. Communication
Self-Mgt. Self-Management
Team & Lead Teamwork and Leadership
Reporting Financial Reporting
Stat. & Gov. Strategy and Governance
Mgt. Accounting Management Accounting
Audit Audit and Assurance
Finance Finance
Tax Taxation
ASSIGNMENT CLASSIFICATION TABLE
Brief Problems Problems
Questions Exercises Exercises Set A Set B
Learning Objectives
1. Calculate the cost of 1, 2, 3, 4, 1, 2, 3, 4 1, 2, 3, 12 1, 2, 3, 4, 1, 2, 3, 4,
property, plant, and 5 7 7
equipment.
2. Apply depreciation methods 6, 7, 8, 9, 5, 6, 7, 8, 2, 3, 4, 5, 2, 3, 5, 7, 2, 3, 5, 7,
to property, plant, and 9, 10 6, 7, 14, 8, 9, 10 8, 9, 10,
equipment. 17 13
3. Explain the factors that cause 9, 10, 11, 11, 12 8, 9, 10 4, 6, 7, 13 4, 6, 7
changes in periodic 12, 13,
depreciation and calculate
revised depreciation for
property, plant, and
equipment.
,4. Demonstrate how to account 14, 15, 13, 14, 15 11, 12 7, 8, 9, 7, 8, 9,
for property, plant, and 16, 17, 10 10
equipment disposals.
5. Record natural resource 18, 19, 20 16, 17 13 13 13
transactions and calculate
depletion.
6. Identify the basic accounting 21, 22 18, 19 14, 15, 16 11, 12 11, 12
issues for intangible assets
and goodwill.
7. Illustrate the reporting and 23, 24 17, 19, 20, 17, 18 10, 12, 10, 12,
analysis of long-lived assets. 21 13, 14 13, 14
ASSIGNMENT CHARACTERISTICS TABLE
Problem Difficulty Time
Number Description Level Allotted (min.)
1A Record property transactions. Simple 20-30
2A Allocate cost and calculate partial period depreciation. Moderate 20-30
3A Determine cost; calculate and compare depreciation under Moderate 30-40
different methods.
4A Account for operating and capital expenditures and asset Moderate 20-30
impairments.
5A Calculate and compare depreciation using three methods. Moderate 30-40
6A Record impairment and calculate revised depreciation. Moderate 20-30
7A Record acquisition, depreciation, impairment, and disposal of Moderate 25-35
land and building.
8A Calculate and compare depreciation and gain or loss on Moderate 30-40
disposal under three methods of depreciation.
9A Record acquisition, depreciation, and disposal of equipment. Moderate 30-40
10A Record property, plant, and equipment transactions; prepare Complex 40-50
partial financial statements.
11A Correct errors in recording intangible asset transactions. Complex 15-20
12A Record intangible asset transactions; prepare partial balance Moderate 30-40
sheet.
,Problem Difficulty Time
Number Description Level Allotted (min.)
13A Record natural resource transactions; prepare partial financial Moderate 25-30
statements.
14A Calculate ratios and comment. Moderate 15-25
1B Record property transactions. Simple 20-30
2B Allocate cost and calculate partial period depreciation. Moderate 20-30
3B Determine cost; calculate and compare depreciation under Moderate 30-40
different methods.
4B Account for operating and capital expenditures and asset Moderate 20-30
impairments.
5B Calculate and compare depreciation using three methods. Moderate 30-40
6B Record impairment and calculate revised depreciation. Moderate 20-30
ASSIGNMENT CHARACTERISTICS TABLE (Continued)
Problem Difficulty Time
Number Description Level Allotted (min.)
7B Record acquisition, depreciation, impairment, and disposal of Moderate 25-35
equipment.
8B Calculate and compare depreciation and gain or loss on Moderate 30-40
disposal under three methods of depreciation.
9B Record acquisition, depreciation, and disposal of furniture. Moderate 30-40
10B Record property, plant, and equipment transactions; prepare Complex 40-50
partial financial statements.
11B Correct errors in recording intangible asset transactions. Complex 15-20
12B Record intangible asset transactions; prepare partial balance Moderate 30-40
sheet.
13B Record equipment, note payable, and natural resource Moderate 25-30
transactions; prepare partial financial statements.
14B Calculate ratios and comment. Moderate 15-25
,BLOOM‘S TAXONOMY TABLE
Correlation Chart between Bloom's Taxonomy, Study Objectives and End-of-
Chapter Exercises and Problems
Learning Objective Knowledge Comprehension Application Analysis Synthesis Evaluation
1. Calculate the cost of Q9.1 Q9.3 BE9.1 P9.2A
property, plant, and Q9.2 Q9.4 BE9.2 P9.3A
equipment. BE9.3 Q9.5 BE9.4 P9.4A
E9.3 E9.1 P9.7A
E9.2 P9.1B
E9.14 P9.2B
P9.1A P9.3B
P9.4B
P9.7B
2. Apply depreciation Q9.7 Q9.6 BE9.5 P9.3A
methods to property, Q9.9 Q9.8 BE9.6 P9.5A
plant, and equipment. Q9.10 BE9.7 P9.7A
Q9.11 BE9.8 P9.8A
E9.3 BE9.9 P9.9A
BE9.10 P9.10A
E9.2 P9.2B
E9.4 P9.3B
E9.5 P9.5B
E9.6 P9.7B
E9.7 P9.8B
E9.14 P9.9B
E9.17 P9.10B
P9.2A P9.13B
3. Explain the factors Q9.9 Q9.10 BE9.11 P9.6A
that cause changes in Q9.12 Q9.11 BE9.12 P9.7A
periodic depreciation Q9.13 E9.8 P9.13A
and calculate revised E9.9 P9.4B
depreciation for E9.10 P9.6B
property, plant, and P9.4A P9.7B
equipment.
4. Demonstrate how to Q9.16 Q9.14 BE9.13 P9.9A
account for property, Q9.15 BE9.14 P9.10A
plant, and equipment Q9.17 BE9.15 P9.7B
disposals. E9.11 P9.8B
E9.12 P9.9B
P9.7A P9.10B
P9.8A
5. Record natural Q9.18 Q9.19 BE9.16 P9.13A
resource transactions Q9.20 BE9.17 P9.13B
and calculate E9.13
depletion.
6. Identify the basic Q9.21 BE9.18 P9.11A
accounting issues for Q9.22 BE9-19 P9.12A
intangible assets and E9.14 P9.11B
goodwill. E9.15 P9.12B
E9.16
,BLOOM‘S TAXONOMY TABLE (Continued)
Learning Objective Knowledge Comprehension Application Analysis Synthesis Evaluation
7. Illustrate the reporting Q9.23 Q9.24 BE9.17 P9.12A E9.18
and analysis of long- BE9.17 BE9.19 P9.13A P9.14A
lived assets. BE9.20 P9.12B P9.14B
BE9.21 P9.13B
E9.17
P9.10A
P9.10B
Broadening Your BYP9.4 BYP9.5
a
Perspective BYP9.1 BYP9.2
BYP9.3 BYP9.6
ANSWERS TO QUESTIONS
1. Three characteristics of property, plant, and equipment include: they (1)
have a physical substance (a definite size and shape), (2) are used in the
operations of the business, and (3) are not intended for sale to customers.
LO 1 BT: K Difficulty: S Time: 5 min. AACSB: None CPA: cpa-t001 CM: Reporting
2. Examples of land improvements are a road, driveway, sidewalk or parking
lot on the property, fencing, or an underground sprinkler system.
LO 1 BT: K Difficulty: S Time: 5 min. AACSB: None CPA: cpa-t001 CM: Reporting
3. The invoice cost, the cost of the safety inspection, and the cost for the
logo to be painted on the vehicle are capitalized, as they are required
costs to put the vehicle into use. The insurance costs benefit the business
for the term of the policy and so the costs should be allocated to the
period of benefit from the policy, typically by initially recording the payment
as prepaid insurance and then reducing the prepayment, charging
insurance expense as the policy expires.
LO 1 BT: C Difficulty: M Time: 5 min. AACSB: None CPA: cpa-t001 CM: Reporting
4. The purpose of depreciation is not to accumulate the cash needed to
replace an asset. Rather, depreciation is a cost allocation method, which
records an expense in those accounting periods where the asset has been
used and has contributed to the earning of revenues. This charge also
reduces the carrying amount of the asset, but it does not involve any cash.
LO 1 BT: C Difficulty: M Time: 5 min. AACSB: None CPA: cpa-t001 CM: Reporting
,5. The purchase cost must be split between the land and building because
the building is depreciated and the land is not. In addition, the cost of each
item will be needed to determine any gain or loss on disposal if either one
is later sold.
LO 1 BT: C Difficulty: M Time: 5 min. AACSB: None CPA: cpa-t001 CM: Reporting
,QUESTIONS (Continued)
6. Residual value is the estimated amount that a company would obtain from
disposing of a long-lived asset at the end of its useful life. Residual value
is not depreciated, since the amount is expected to be recovered at the
end of the asset’s useful life. Residual value is used in the formula for
calculating periodic depreciation using the straight line and unit-of-
production methods. Residual value is used in an indirect way in the
diminishing balance method. Rather than using residual value to reduce
the depreciable amount, as is done using the other two methods, the total
amount of depreciation recorded is limited to the amount that will cause
the carrying amount to equal the residual value of the asset.
LO 1 BT: C Difficulty: M Time: 5 min. AACSB: None CPA: cpa-t001 CM: Reporting
7. The three factors that affect the calculation of depreciation include cost,
useful life, and residual value. The cost of a depreciable asset must
include all necessary costs to get the asset ready for use. The useful life is
the period of time an asset is expected to be available for use. This length
may be measured as a function of time or number of units of production.
The residual value is the estimated amount that a company would obtain
from disposing of the asset at the end of its useful life.
LO 2 BT: K Difficulty: M Time: 5 min. AACSB: None CPA: cpa-t001 CM: Reporting
8. The amount of annual depreciation is different over the useful life of an
asset depending on which of the three depreciation methods are being
used. The straight-line method creates a constant amount of depreciation
over the useful life. The diminishing-balance method is devised to charge
a higher amount of depreciation in the earlier part of the useful life of the
asset. Lastly, the unit-of-production method is less predictable in that it is
based on the amount of use that is being made of the asset in each period
.
LO 2 BT: C Difficulty: M Time: 5 min. AACSB: None CPA: cpa-t001 CM: Reporting
9. A company should choose the depreciation method it believes will best
reflect the pattern over which the asset’s future economic benefits are
expected to be consumed. The depreciation method must be revised if the
expected pattern of consumption of the future economic benefits has
changed.
LO 2,3 BT: K Difficulty: M Time: 5 min. AACSB: None CPA: cpa-t001 CM: Reporting
, QUESTIONS (Continued)
10. Operating expenditures are ordinary repairs made to maintain the
operating efficiency and expected productive life of the asset. Because
they are recurring expenditures and normally benefit only the current
accounting period, they are expensed when incurred. Capital expenditures
are additions and improvements made to increase efficiency, productivity,
or expected useful life of the asset. Because they benefit future periods,
capital expenditures are debited to the asset account affected. Once
capitalized, these expenditures are depreciated over their benefiting
period.
LO 3 BT: C Difficulty: M Time: 5 min. AACSB: None CPA: cpa-t001 CM: Reporting
11. Revision of depreciation generally occurs when there is a change to any of
the three factors that affect the calculation of depreciation: the asset’s
cost, useful life, or residual value. Depreciation needs to be revised if
there are capital expenditures, impairments in the asset’s recoverable
amount, changes in the depreciation method, or changes in the estimated
remaining useful life or residual value. The revisions are based on new
information that will affect only current and future periods, so there is no
revision of depreciation previously recorded.
LO 3 BT: C Difficulty: M Time: 5 min. AACSB: None CPA: cpa-t001 CM: Reporting
12. Factors that may contribute to an impairment loss include obsolescence of
a piece of equipment, loss of a market for a product manufactured,
bankruptcy of the supplier of replacement parts for equipment, or
environmental concerns causing extra costs of disposal at the end of the
useful life.
LO 3 BT: K Difficulty: M Time: 5 min. AACSB: None CPA: cpa-t001 CM: Reporting
13. Extending the total service life and consequently the estimated remaining
useful life of a depreciable asset will reduce the amount of depreciation
recorded in each of the remaining five years of use. The carrying amount
of the asset will become the new basis to which the business will apply the
formula of the depreciation method. The residual value may also be
revised.
LO 3 BT: C Difficulty: M Time: 5 min. AACSB: None CPA: cpa-t001 CM: Reporting
