Solutions Manual for Accounting
Principles, Volume 2,
10th Canadian Edition
Jerry J. Weygandt, Paul D. Kimmel, Jill E. Mitchell, Valerie Warren, Lori Novak
TABLE OF CONTENTS
Chapter 9. Long-Lived Assets
Chapter 10. Current Liabilities and Payroll
Chapter 11. Financial Reporting Concepts
Chapter 12. Accounting for Partnerships
Chapter 13. Introduction to Corporations
Chapter 14. Corporations: Additional Topics and IFRS
Chapter 15. Non-Current Liabilities
Chapter 16. Investments
Chapter 17. The Cash Flow Statement
Chapter 18. Financial Statement Analysis
,CHAPTER 9. LONG-LIVED ASSETS
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
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
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
14. Depreciation must be updated from the last time depreciation entries were
recorded to the date of the sale because the depreciation expense must
properly reflect the total period over which the asset’s economic benefits
are used. Updating depreciation also aids in determining the correct amount
of the gain or loss on disposal.
LO 4 BT: C Difficulty: M Time: 5 min. AACSB: None CPA: cpa-t001 CM: Reporting
15. The asset and related accumulated depreciation should continue to be
reported on the balance sheet, without further depreciation or adjustment,
until the asset is retired. Reporting the asset and related accumulated
depreciation on the balance sheet informs the reader of the financial
statements that the asset is still being used by the company. However, once
an asset is fully depreciated, no additional depreciation should be taken on
this asset, even if it is still being used. In no situation can the accumulated
depreciation exceed the cost of the asset.
LO 4 BT: C Difficulty: M Time: 5 min. AACSB: None CPA: cpa-t001 CM: Reporting
16. In a sale of property, plant, or equipment, the carrying amount of the asset
is compared to the proceeds from the sale. If the proceeds of the sale
exceed the carrying amount of the asset, a gain on disposal occurs. If the
proceeds of the sale are less than the carrying amount of the asset sold, a
loss on disposal occurs.
In an exchange, a new asset is received in an exchange for the old asset
given up. The gain or loss is calculated by comparing the fair value of the
asset given up to its carrying amount. The trade-in allowance on the asset
given up is not relevant because it rarely reflects the fair value of the asset
that is given up. Instead of using the trade-in allowance, the fair value of the
asset given up is used to calculate the gain or loss on the asset being given
up. A loss results if the carrying amount of the asset being given up is more
than its fair value. A gain results if the carrying amount is less than its fair
value.
LO 4 BT: K Difficulty: M Time: 10 min. AACSB: None CPA: cpa-t001 CM: Reporting
Principles, Volume 2,
10th Canadian Edition
Jerry J. Weygandt, Paul D. Kimmel, Jill E. Mitchell, Valerie Warren, Lori Novak
TABLE OF CONTENTS
Chapter 9. Long-Lived Assets
Chapter 10. Current Liabilities and Payroll
Chapter 11. Financial Reporting Concepts
Chapter 12. Accounting for Partnerships
Chapter 13. Introduction to Corporations
Chapter 14. Corporations: Additional Topics and IFRS
Chapter 15. Non-Current Liabilities
Chapter 16. Investments
Chapter 17. The Cash Flow Statement
Chapter 18. Financial Statement Analysis
,CHAPTER 9. LONG-LIVED ASSETS
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
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
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
14. Depreciation must be updated from the last time depreciation entries were
recorded to the date of the sale because the depreciation expense must
properly reflect the total period over which the asset’s economic benefits
are used. Updating depreciation also aids in determining the correct amount
of the gain or loss on disposal.
LO 4 BT: C Difficulty: M Time: 5 min. AACSB: None CPA: cpa-t001 CM: Reporting
15. The asset and related accumulated depreciation should continue to be
reported on the balance sheet, without further depreciation or adjustment,
until the asset is retired. Reporting the asset and related accumulated
depreciation on the balance sheet informs the reader of the financial
statements that the asset is still being used by the company. However, once
an asset is fully depreciated, no additional depreciation should be taken on
this asset, even if it is still being used. In no situation can the accumulated
depreciation exceed the cost of the asset.
LO 4 BT: C Difficulty: M Time: 5 min. AACSB: None CPA: cpa-t001 CM: Reporting
16. In a sale of property, plant, or equipment, the carrying amount of the asset
is compared to the proceeds from the sale. If the proceeds of the sale
exceed the carrying amount of the asset, a gain on disposal occurs. If the
proceeds of the sale are less than the carrying amount of the asset sold, a
loss on disposal occurs.
In an exchange, a new asset is received in an exchange for the old asset
given up. The gain or loss is calculated by comparing the fair value of the
asset given up to its carrying amount. The trade-in allowance on the asset
given up is not relevant because it rarely reflects the fair value of the asset
that is given up. Instead of using the trade-in allowance, the fair value of the
asset given up is used to calculate the gain or loss on the asset being given
up. A loss results if the carrying amount of the asset being given up is more
than its fair value. A gain results if the carrying amount is less than its fair
value.
LO 4 BT: K Difficulty: M Time: 10 min. AACSB: None CPA: cpa-t001 CM: Reporting
