Solutions Manual For Fundamental Accounting Principles Volume 2 15TH Canadian Edition By Larson/Jensen/Dieckmann

Solutions Manual For Fundamental Accounting Principles Volume 2 15TH Canadian Edition By Larson/Jensen/Dieckmann. Quick Study 9-2 (10 minutes) 1. (a) R (b) C (c) R (d) C 2. (a) Mar. 15 Repairs Expense ................................. 120 Accounts Payable .......................... 120 To record repairs. (b) Mar. 15 Refrigeration Equipment .................... 40,000 Accounts Payable .......................... 40,000 To record capital expenditure. (c) Mar. 15 Repairs Expense ................................. 200 Accounts Payable .......................... 200 To record repairs. (d) Mar. 15 Office Building .................................... 175,000 Accounts Payable .......................... 175,000 To record capital expenditure. Quick Study 9-3 (10 minutes) (a) (b) (c) PPE Item Appraised Values Ratio of Individual Appraised Value to Total Appraised Value (a) ÷ Total Appraised Value Cost Allocation (b) x Total Actual Cost Land .............. $ 320,000 320,000 ÷ 500,000 = .64 or 64% $ 345,6001 Building ........ 180,000 180,000 ÷ 500,000 = .36 or 36% 194,4002 Totals ............ $ 500,000 $ 540,000 1. 64% x 540,000 = 345,600 2. 36% x 540,000 = 194,400 2017 Apr. 14 Land ........................................................... 345,600 Building ..................................................... 194,400 Cash ...................................................... 85,000 Notes Payable....................................... 455,000 To record purchase of land and building. Quick Study 9-4 (10 minutes) TechCom Partial Balance Sheet October 31, 2017 Assets Current assets: Cash ....................................................................... $ 9,000 Accounts receivable .............................................. $16,400 Less: Allowance for doubtful accounts ............ 800 15,600 Total current assets ............................................... $ 24,600 Property, plant and equipment: Land ........................................................................ $48,000 Vehicles .................................................................. $62,000 Less: Accumulated depreciation ....................... 13,800 48,200 Equipment .............................................................. $25,000 Quick Study 9-5 (10 minutes) ($55,900 – $1,900)/4 = $13,500/year Quick Study 9-6 (10 minutes) Rate per copy = ($45,000 – $5,000)/4,000,000 copies = $0.01/copy Year Calculation Annual Depreciation 2017 $.01 × 650,000 = $6,500 2018 $.01 × 798,000 = 7,980 2019 $.01 × 424,000 = 4,240 2020 $.01 × 935,000 = 9,350 2021 $.01 × 1,193,000 = 11,930 $40,000 Quick Study 9-7 (10 minutes) Annual rate of depreciation = 2/5 = .40 or 40% per year Year Calculation Annual Depreciation 2017 40% × $86,000 = $34,400 2018 40% × ($86,000 – $34,400) = 20,640 2019 40% × ($86,000 – $34,400 – $20,640) = 12,384 2020 40% × ($86,000 – $34,400 – $20,640 – $12,384) = 2,576* 2021 0 $70,000 *The calculation shows $7,430 of depreciation but that amount would cause accumulated depreciation to exceed the maximum allowed of cost less residual ($86,000 – $16,000 = $70,000). Therefore, the depreciation for 2020 must be adjusted to $2,576. Quick Study 9-8 (10 minutes) Computer panel: $4,000/8 years = $500 depreciation Dry-cleaning drum: $70,000 - $5,000 = $65,000/400,000 garments = $0.1625/garment; $0.1625/garment × 62,000 garments = $10,075 depreciation Stainless steel housing: $85,000 - $10,000 = $75,000/20 years = $3,750 depreciation Miscellaneous parts: $26,000/2 years = $13,000 depreciation Total depreciation on the dry cleaning equipment for 2017= $500 + $10,075 + $3,750 + $13,000 = $27,325 Quick Study 9-9 (10 minutes) a. $5,000 $6,000 b. $3,000 $6,000 Calculations: a. 60,000 - 0 = 6,000/year x 10/12 = 5,000 10 years b. 6,000/year x 6/12 = 3,000 Quick Study 9-10 (10 minutes) a. $10,000 $10,000 b. $6,000 $10,800 Calculations: a. 2/10 = .2 or 20%; 20% x 60,000 = 12,000 x 10/12 = 10,000 for 2017 20%x()=10000for2018 Quick Study 9-11 (10 minutes) a. 10,000 14,000 b. 10,000 14,000 Calculations: 75,000 – 15,000 = 60,000/120,000 = $0.50 depreciation expense per unit produced $0.50 x 20,000 = $10,000 for 2017; $0.50 x 28,000 = $14,000 for 2018 NOTE: The units-of-production method is a usage-based method as opposed to a timebased method (such as straight-line and double-declining-balance) and therefore partial periods do not affect the calculations. Quick Study 9-12 (10 minutes) [($35,720 – $11,8201 ) – $1,570]/ 72 years remaining = $3,190 1.($35,720 – $4,200)/8 = $3,940/year × 3 years = $11,820 2.10 – 3 = 7 Quick Study 9-13 (10 minutes) 2017 Jan. 3 Barbecue – Rotisserie…………………………………… 1,000 Cash………………………………………………….. 1,000 To record the purchase of electronic rotisserie. Dec. 31 Depreciation Expense, Barbecue……………………… 1,560 Accumulated Depreciation, Barbecue………… 1,560 To record revised depreciation on the barbecue caused by the addition of a rotisserie; $7,000 - $200 = $6,800 ÷ 5 years = $1,360 PLUS $1,000 ÷5 years = $200; Total depreciation = $1,360 + $200 = $1,560. Quick Study 9-14 (10 minutes) Impairment losses occurred on the computer and the furniture in the amounts of $1,500 and $21,000, respectively. Calculations: Asset Cost Accumulated Depreciation Book Value Recoverable Amount Impairment Loss Building $1,200,000 $465,000 $735,000 $735,000 N/A Computer 3,500 1,800 1,700 200 $ 1,500 Furniture 79,000 53,000 26,000 5,000 21,000 Land 630,000 0 630,000 790,000 N/A Machine 284,000 117,000 167,000 172,000 N/A Quick Study 9-15 (10 minutes) a. 2017 Oct. 1 Accumulated Depreciation, Equipment ................ 39,000 Cash ........................................................................ 17,000 Equipment ......................................................... 56,000 To record sale of equipment. b. Oct. 1 Accumulated Depreciation, Machinery ................ 96,000 Cash ........................................................................ 27,000 Machinery .......................................................... 109,000 Gain on Disposal ............................................... 14,000 To record sale of equipment. c. Oct. 1 Accumulated Depreciation, Truck ........................ 33,000 Cash ........................................................................ 11,000 Loss on disposal ................................................... 4,000 Delivery truck .................................................... 48,000 To record sale of equipment. d. Oct.1AccumulatedDepreciation,Furniture..................21,000 Quick Study 9-16 (10 minutes) 2017 Dec 31 Accumulated Depreciation, Automobile .............. 13,500 Computer* .............................................................. 5,800 Automobile ........................................................ 15,000 Cash ................................................................... 2,750 Gain on Disposal ............................................... 1,550 To record exchange. *Computer = FV of assets received= $5,800 as given Quick Study 9-17 (15 minutes) 2017 Mar. 1 Accumulated Depreciation, Machine (old) .......... 36,000 Machine (new)2 ...................................................... 117,000 Cash1 ...................................................................... 63,000 Machine (old) ............................................... 90,000 To record exchange of machines. 1. Cash paid = $123,000 - $60,000 = $63,000 2. Machine (new) = $63,000 cash paid + $54,000 book value of old = $117,000 Quick Study 9-18 (10 minutes) 2017 Jan. 4 Franchise ............................................................... 95,000 Cash 95,000 To record purchase of franchise. Dec. 31 Amortization Expense, Franchise ........................ 9,500 Accumulated Amortization, Franchise ......... 9,500 To record amortization of franchise; $95,000/10 years = $9,500 per year EMAIL ME: For help with report, Assignment, Essay and thesis writing. Quick Study 9-19 (10 minutes) 2017 Oct. 1 Mineral Rights 35,000,000 Water Rights 4,000,000 Cash 9,000,000 Long-Term Note Payable 30,000,000 To record the purchase of intangibles. Dec. 31 Amortization Expense, Mineral Rights 875,000 Accumulated Amortization, Mineral Rights 875,000 To record amortization of mineral rights; $35,000,000 ÷ 10 years = $3,500,000/year; $3,500,000/year × 3/12 = $875,000. 31 Amortization Expense, Water Rights 100,000 Accumulated Amortization, Water Rights 100,000 To record amortization of water rights; $4,000,000 ÷ 10 years = $400,000/year; $400,000/year × 3/12 = $100,000. *Quick Study 9-20 (20 minutes) Motor (old) $45,000 - $5,000 = $40,000 ÷ 10 yrs× 8/12 = $ 2,667 Motor (new) $60,000 - $10,000 = $50,000 ÷ 8 yrs × 4/12 = 2,083 Metal housing $68,000 - $15,000 = $53,000 ÷ 25 yrs = 2,120 Misc. parts $15,000 ÷ 5 yrs = 3,000 Total depreciation expense to be recorded on the machine for 2017 = $ 9,870 EXERCISES Exercise 9-1 (10 minutes) Invoice cost ........................................................... $15,000 Freight costs ......................................................... 260 Steel mounting ...................................................... 795 Assembly ............................................................... 375 Raw materials for testing...................................... 120 Less: discount ($15,000 × 2%) ............................ 300 Total acquisition costs ..................................... $16,250 Note: The $190 repairs are an expense and therefore not capitalized. Exercise 9-2 (15 minutes) Cost of land: Purchase price for land................................................................ $1,200,000 Purchase price for old building ................................ 480,000 Demolition costs for old building ................................ 75,000 Levelling the lot ................................................................ 105,000 Total cost of land ................................................................ $1,860,000 Cost of new building: Construction costs ................................................ $2,880,000 Less: Cost of land improvements* ...................... 215,000 Cost of new building ............................................. $2,665,000 *The land improvements are a distinct PPE asset that depreciates at a different rate than the building. Therefore it should be debited to an account separate from the building. Journal entry: 2017 Mar. 10 Land ....................................................................... 1,860,000 LandImprovements215000 Exercise 9-3 (15 minutes) Allocation of total cost: (a) (b) (c) PPE Asset Appraised Values Ratio of Individual Appraised Value to Total Appraised Value (a) ÷ Total Appraised Value Cost Allocation (b) x Total Actual Cost Land $249,480 249,480 ÷ 594,000 = .42 or 42% $ 244,3462 Land Imprv. 83,160 83,160 ÷ 594,000 = .14 or 14% 81,4483 Building 261,360 261,360 ÷ 594,000 = .44 or 44% 255,9814 Totals $594,000 $ 581,7751 1. 552,375 + 29,400 = 581,775 2. 42% x 581,775 = 244,346 3. 14% x 581,775 = 81,448 4. 44% x 581,775 = 255,981 Journal entry: 2017 Apr. 12 Land .................................................................................... 244,346 Land Improvements ........................................................... 81,448 Building .............................................................................. 255,981 Cash ............................................................................. 581,775 To record costs of lump-sum purchase. Exercise 9-4 (20 minutes) 2017 Jan. 1 Land ................................................................................ 1,296,000 Building .......................................................................... 1,512,000 Equipment ...................................................................... 1,123,200 Tools ............................................................................... 388,800 Cash .......................................................................... 1,104,000 Notes Payable ........................................................... 3,216,000 To record lump-sum purchase. Calculations: (a) (b) (c) PPE Asset Appraised Values Ratio of Individual Appraised Value to Total Appraised Value (a) ÷ Total Appraised Value Cost Allocation (b) x Total Actual Cost Land $ 1,152,000 1,152,000 ÷ 3,840,000 = .30 or 30% $ 1,296,0001 Building 1,344,000 1,344,000 ÷ 3,840,000 = .35 or 35% 1,512,0002 Equipment 998,400 998,400 ÷ 3,840,000 = .26 or 26% 1,123,2003 Tools 345,600 345,600 ÷ 3,840,000 = .09 or 9% 388,8004 Totals $ 3,840,000 $ 4,320,000 1. 30% x 4,320,000 = 1,296,000 2. 35% x 4,320,000 = 1,512,000 3. 26% x 4,320,000 = 1,123,200 4. 9% x 4,320,000 = 388,800 Exercise 9-5 (10 minutes) 2017 Jan 1 Truck 63,000 Cash 63,000 Calculation: 37,500 + 13,500 + 6,750 + 5,250 = 63,000 Jan 4 Prepaid insurance 3,600 Gas expense 180 Cash 3,780 2017 Dec. 31 Depreciation Expense, Truck 11,100 Accumulated Depreciation, Truck 11,100 To record depreciation. Calculation: [(37,500 + 13,500 + 6,750 + 5,250) – 7,500] / 5 years = 11,100 Note: Insurance expense entries could also be made, to move from prepaid insurance, although not required in question. 9-17 Exercise 9-6 (15 minutes) (a) (b) (c) Year Straight-line Double-declining-balance (Rate = 2/4 = .50 or 50%) Units-of-production (Rate = [(169,200 – 24,000)/181,500] = .80/unit) 2017 36,3001 50% × 169,200 = 84,600 30,640 (.80 × 38,300) 2018 36,300 50% × (169,200 – 84,600) = 42,300 32,920 (.80 × 41,150) 2019 36,300 $18,3002 42,080 (.80 × 52,600) 2020 36,300 0 39,5603 1. (169,200 – 24,000)/4 = 36,300/year 2. Maximum depreciation is limited to $145,200 which is cost less residual ($169,200 – $24,000) therefore depreciation for 2019is $18,300 calculated as $145,200 – $126,900 accumulated depreciation recorded to date. 3. Maximum depreciation is limited to $145,200 which is cost less residual ($169,200 – $24,000) therefore depreciation for 2020is $39,560 calculated as $145,200 – $105,640 accumulated depreciation recorded to date. Exercise 9-7 (15 minutes) a. (238,400 – 46,400)/5 = $38,400 b. Rate = 2/5 = .40 or 40% 40% × 238,400 = $95,360 c. Rate = (238,400 – 46,400)/240,000 km = $0.80/km $0.80/km × 38,000 km = $30,400 Analysis component: The units-of-production method will produce the highest profit in 2017because it is the lowest depreciation expense for 2017. Exercise 9-8 (30 minutes) Straight-Line1 Double-Declining-Balance2 Units-of-Production3 Year Depreciation Expense Book Value at December 31 Depreciation Expense Book Value at December 31 Depreciation Expense Book Value at December 31 2017 21,250 104,000 50,100 75,150 16,875 108,375 2018 21,250 82,750 30,060 45,090 22,250 86,125 2019 21,250 61,500 18,036 27,054 30,000 56,125 2020 21,250 40,250 8,054 19,000 37,125 19,000 2021 21,250 19,000 0 19,000 0 19,000 Calculations: 1. 125,250 – 19,000 = 106,250/5 = 21,250 2. 2/5 = .4 or 40%; .4 x 125,250 = 50,100; .4 x (125,250 – 50,100) = 30,060; .4 x (125,250 – 50,100 – 30,060) = 18,036; .4 x (125,250 – 50,100 – 30,060 – 18,036) = 10,822; maximum = 8,054 calculated as cost less residual = 125,250 – 19,000 = 106,250 less total deprec. taken of 98,196 = 8,054. 3. 125,250 – 19,000 = 106,250/8,500 = $12.50/hour; 2017– 12.50 x 1,350 = 16,875; 2018– 12.50 x 1,780 = 22,250; 2019– 12.50 x 2,400 = 30,000; 2020– 12.50 x 2,980 = 37,250; maximum = 37,125; calculated as cost less residual = 9-19 Exercise 9-9 (30 minutes) (a) (b) (c) PPE Asset Appraised Values Ratio of Individual Appraised Value to Total Appraised Value (a) ÷ Total Appraised Value Cost Allocation (b) x Total Actual Cost Land ......................... $ 700,000 700,000 ÷ 2,100,000 = .33 or 33.33% $ 840,0001 Building ................... 1,120,000 1,120,000 ÷ 2,100,000 = .533 or 53.33% 1,344,0002 Equipment ............... 210,000 210,000 ÷ 2,100,000 = .10 or 10% 252,0003 Tools ........................ 70,000 70,000 ÷ 2,100,000 = .033 or 3.33% 84,0004 Totals ....................... $ 2,100,000 $ 2,520,000 1. 33.33% x 2,520,000 = 840,000 2. 53.33% x 2,520,000 = 1,344,000 3. 10.00% x 2,520,000 = 252,000 4. 3.33% x 2,520,000 = 84,000 PPE Asset Cost 2017Depreciation 2018Depreciation Land ......................... $ 840,000 N/A5 N/A5 Building .................... 1,344,000 1,344,000 × 2/10 = 268,800 (1,344,000 – 268,800) × 2/10 = 215,040 Equipment ................ 252,000 252,000 × 2/5 = 100,800 (252,000 – 100,800) × 2/5 = 60,480 Tools ........................ 84,000 84,000 × 2/3 = 56,000 (84,000 – 56,000) × 2/3 = 18,667 5. Land is not depreciated as it has an unlimited life and is not consumed when used. Analysis component: We do not depreciate the cost of land as it has an unlimited life and is not consumed when used. 9-20 Exercise 9-10 (20 minutes) Cost Information Depreciation Description Date of Purchase Depreciation Method Cost Residual Life Balance of Accum. Deprec. Dec. 31, 2016 Depreciation Expense for 2017 Balance of Accum. Deprec. Dec. 31, 2017 Building 2 May 2011 S/L $650,000 $250,000 10 yr. $226,667 $40,0001 $266,6672 Modular Furniture 2 May 2011 S/L 72,000 0 6 yr. 68,000 4,0003 72,0004 Truck 25 Jan 2014 DDB 80,000 10,000 8 yr. 45,313 8,6725 53,9856 1. (650,000 – 250,000)/10 = 40,000/year 2. 226,667 + 40,000 = 266,667 3. (72,000 – 0)/6 = 12,000 per year; however the maximum accumulated depreciation = 72,000; 72,000 less total depreciation taken of 68,000(8,000 in 2011 [(72,000 – 0)/6 = $12,000 per year X 8/12] plus 12,000 in years 2012– 2016) = 4,000 4. 68,000 + 4,000 = 72,000 5. Rate = 2/8 = .25 or 25% 25% × (80,000 – 45,313) = 8,672 6. 45,313 + 8,672 = 53,985 Analysis component: Depreciation is the process of allocating an asset’s cost to expense over its useful life. It should be done using a rational and systematic manner. Dynamic uses the straight-line method and the double-declining balance method for its assets, which are both acceptable under GAAP. Dynamic has likely chosen different methods for depreciating its assets to better reflect the usage pattern of each asset, which is acceptable under GAAP. Exercise 9-11 (15 minutes) DYNAMICEXPLORATION Partial Balance Sheet December 31, 2016 Assets Current assets ........................................................... $338,000 Property, plant and equipment: Furniture ................................................................. $72,000 Less: Accumulated depreciation ................... 68,000 $4,000 Building .................................................................. $650,000 Less: Accumulated depreciation ................... 226,667 423,333 Truck ...................................................................... $ 80,000 Less: Accumulated depreciation ................... 45,313 34,687 Total property, plant and equipment .................... 462,020 Total assets ............................................................... $800,020 Exercise 9-12 (15 minutes) a. Straight-line depreciation: Year 1 Year 2 Year 3 Year 4 Year 5 5-Year Totals Profit before depreciation ............... $171,000 $171,000 $171,000 $171,000 $171,000 $855,000 Depreciation expense1 ......................... 73,080 73,080 73,080 73,080 73,080 365,400 Profit ............................... $97,920 $97,920 $97,920 $97,920 $97,920 $489,600 b. Double-declining-balance depreciation: Year 1 Year 2 Year 3 Year 4 Year 5 5-Year Totals Profit before depreciation ................ $171,000 $171,000 $171,000 $171,000 $171,000 $855,000 Depreciation expense2 .......................... 188,160 112,896 64,,400 Profit (loss) ..................... $(17,160) $58,104 $106,656 $171,000 $171,000 $489,600 1. (470,400 – 105,000)/5 = 73,080 2Rt2/54040% Analysis component: Kenartha Oil will choose straight-line depreciation to depreciate the equipment if its goal is to show the highest value possible for the equipment on the Year 1 balance sheet. Straight-line will result in lower depreciation than double declining balance in Year 1. The lower the depreciation, the greater the net book value of the asset (cost less accumulated depreciation appearing in the balance sheet). Exercise 9-13 (15 minutes) Depreciation Year Straight-Line1 Units-of-Production3 2017 7,200 20,088 2018 21,600 43,416 2019 21,600 33,696 1. 156,000 – 26,400 = 129,600/6 = 21,600 x 4/12 = 7,200 2. 156,000 – 26,400 = 129,600/200,000 = $0.648/unit; .648 x 31,000 = 20,088; .648 x 67,000 = 43,416; .648 x 52,000 = 33,696 Analysis component: If depreciation is not recorded, expenses are understated and net income is overstated on the income statement and on the balance sheet, assets and equity would be overstated. Exercise 9-14 (25 minutes) Depreciation Year Straight-Line1 Double-DecliningBalance2