Installs a computerized manufacturing machine

10.4.
Ramirez Company installs a computerized manufacturing machine in its factory at the beginning of the year at a cost of $43,500. The machine's useful life is estimated at 10 years, or 385,000 units of product, with a $5,000 salvage value. During its second year, the machine produces 32,500 units of product.

Determine the machine’s second-year depreciation using the units-of-production method.

Units-of-production Depreciation
Choose Numerator:	/	Choose Denominator:	=	Annual Depreciation Expense
Cost minus salvage		Total units of production	=	Depreciation expense per unit
$38,500		385,000	=	$0.10
Year	Annual Production (units)	Depreciation Expense
2	32,500	$3,250

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2.
Ramirez Company installs a computerized manufacturing machine in its factory at the beginning of the year at a cost of $43,500. The machine's useful life is estimated at 10 years, or 385,000 units of product, with a $5,000 salvage value. During its second year, the machine produces 32,500 units of product.

Determine the machine’s second-year depreciation using the double-declining-balance method.

Double-declining-balance Depreciation
Choose Factors:	x	Choose Factor(%)	=	Annual Depreciation Expense
Beginning book value	x	Double the straight-line rate	=	Depreciation expense
First year's depreciation	$43,500	x	20%	=	$8,700
Second year's depreciation	$34,800	x	20%	=	$6,960

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3.

In early January 2015, NewTech purchases computer equipment for $154,000 to use in operating activities for the next four years. It estimates the equipment’s salvage value at $25,000.

Prepare a table showing depreciation and book value for each of the four years assuming straight-line depreciation.

Straight-Line Depreciation
Choose Numerator:	/	Choose Denominator:	=	Annual Depreciation Expense
Cost minus salvage		Estimated useful life (years)	=	Depreciation expense
$129,000		4	=	$32,250
Year	Annual Depreciation	Year-End Book Value
2015	$32,250	$121,750
2016	32,250	89,500
2017	32,250	57,250
2018	32,250	25,000
Total	$129,000

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4.
On April 1, 2014, Cyclone’s Backhoe Co. purchases a trencher for $280,000. The machine is expected to last five years and have a salvage value of $40,000.

Compute depreciation expense for both years ending December 2014 and 2015 assuming the company uses the straight-line method.

Straight-line, partial-year depreciation
Choose Numerator:	/	Choose Denominator:	=	Annual Depreciation
Cost minus salvage		Estimated useful life (years)	=	Annual depreciation
$240,000		5	=	$48,000
Year	Annual Depreciation	x	Fraction of Year	=	Depreciation Expense
2014	$48,000	x	9/12	$36,000
2015	$48,000	x	12/12	$48,000

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5.
On April 1, 2014, Cyclone’s Backhoe Co. purchases a trencher for $280,000. The machine is expected to last five years and have a salvage value of $40,000.

Compute depreciation expense for both years ending December 2014 and 2015 assuming the company uses the double-declining-balance method.

Double-declining-balance, partial-year depreciation
Depreciation for the Period				End of Period
Annual Period	Beginning of Period Book Value	Depreciation Rate	Partial Year	Depreciation Expense	Accumulated Depreciation	Book Value
2014	$280,000	40%	9/12	$84,000	$84,000	$196,000
2015	$196,000	40%	12/12	$78,400	$162,400	$117,600

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6.
Apex Fitness Club uses straight-line depreciation for a machine costing $23,860, with an estimated four year life and a $2,400 salvage value. At the beginning of the third year, Apex determines that the machine has three more years of remaining useful life, after which it will have an estimated $2,000 salvage value.

(1)

Compute the machine’s book value at the end of its second year.

Book Value at the End of Year 2:
Cost	$23,860
Accumulated depreciation 2 years	(10,730)
Book value at point of revision	13,130

(2)

Compute the amount of depreciation for each of the final three years given the revised estimates.

Revised Depreciation (Years 3-5)
Book value at point of revision	$13,130
Revised salvage value	(2,000)
Remaining depreciable cost	11,130
Years of life remaining	3
Revised annual depreciation years 3-5	$3,710

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7.

Oki Company pays $264,000 for equipment expected to last four years and have a $29,000 salvage value. Prepare journal entries to record the following costs related to the equipment.

1.	During the second year of the equipment’s life, $22,000 cash is paid for a new component expected to increase the equipment’s productivity by 10% a year.
2.	During the third year, $6,250 cash is paid for normal repairs necessary to keep the equipment in good working order.
3.	During the fourth year, $14,870 is paid for repairs expected to increase the useful life of the equipment from four to five years.

Transaction	General Journal	Debit	Credit
1	Equipment	22,000
Cash	22,000
2	Repairs expense	6,250
Cash	6,250
3	Equipment	14,870
Cash	14,870

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8.
On April 2, 2015, Montana Mining Co. pays $3,721,000 for an ore deposit containing 1,525,000 tons. The company installs machinery in the mine costing $213,500, with an estimated seven-year life and no salvage value. The machinery will be abandoned when the ore is completely mined. Montana begins mining on May 1, 2015, and mines and sells 166,200 tons of ore during the remaining eight months of 2015.

Prepare the December 31, 2015, entries to record both the ore deposit depletion and the mining machinery depreciation. Mining machinery depreciation should be in proportion to the mine’s depletion. (Round your unit depreciation and depletion rates to 2 decimal places.)

Date	General Journal	Debit	Credit
Dec 31	Depletion expense—Mineral deposit	405,528
Accumulated depletion—Mineral deposit	405,528
Dec. 31	Depreciation expense—Machinery	23,268
Accumulated depreciation—Machinery	23,268

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10.19.
Milano Gallery purchases the copyright on an oil painting for $418,000 on January 1, 2015. The copyright legally protects its owner for 10 more years. The company plans to market and sell prints of the original for 11 years.

Prepare entries to record the purchase of the copyright on January 1, 2015, and its annual amortization on December 31, 2015.

Date	General Journal	Debit	Credit
Jan 01	Copyright	418,000
Cash	418,000
Dec 31	Amortization expense—Copyright	41,800
Accumulated amortization—Copyright	41,800

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Question 10-3A
[The following information applies to the questions displayed below.]

In January 2015, Mitzu Co. pays $2,600,000 for a tract of land with two buildings on it. It plans to demolish Building 1 and build a new store in its place. Building 2 will be a company office; it is appraised at $644,000, with a useful life of 20 years and a $60,000 salvage value. A lighted parking lot near Building 1 has improvements (Land Improvements 1) valued at $420,000 that are expected to last another 12 years with no salvage value. Without the buildings and improvements, the tract of land is valued at $1,736,000. The company also incurs the following additional costs:

Cost to demolish Building 1	$	328,400
Cost of additional land grading	175,400
Cost to construct new building (Building 3), having a useful life of 25 years and a $392,000 salvage value	2,202,000
Cost of new land improvements (Land Improvements 2) near Building 2 having a 20-year useful life and no salvage value	164,000

10.

Required:

1.	Allocate the costs incurred by Mitzu to the appropriate columns and total each column.

Allocation of Purchase Price	Appraised Value	Percent of Total Appraised Value	x	Total Cost of Acquisition	=	Apportioned Cost
Land	$1,736,000	62%	x	$2,600,000	=	$1,612,000
Building 2	644,000	23%	x	2,600,000	=	598,000
Land Improvements 1	420,000	15%	x	2,600,000	=	390,000
Totals	$2,800,000	100%	$2,600,000
Land	Building 2	Building 3	Land Improvements 1	Land Improvements 2
Purchase Price	$1,612,000	$598,000	$0	$390,000	$0
Demolition	328,400	0	0	0	0
Land grading	175,400	0	0	0	0
New building (Construction cost)	0	0	2,202,000	0	0
New improvements cost	0	0	0	0	164,000
Totals	$2,115,800	$598,000	$2,202,000	$390,000	$164,000

11.

2.	Prepare a single journal entry to record all the incurred costs assuming they are paid in cash on January 1, 2015.

Date	General Journal	Debit	Credit
Jan 01	Land	2,115,800
Building 2	598,000
Building 3	2,202,000
Land improvements 1	390,000
Land improvements 2	164,000
Cash	5,469,800

12.

3.	Using the straight-line method, prepare the December 31 adjusting entries to record depreciation for the 12 months of 2015 when these assets were in use.

Date	General Journal	Debit	Credit
Dec 31	Depreciation expense—Building 2	26,900
Accumulated depreciation—Building 2	26,900
Dec 31	Depreciation expense—Building 3	72,400
Accumulated depreciation—Building 3	72,400
Dec 31	Depreciation expense—Land improvements 1	32,500
Accumulated depreciation—Land improvements 1	32,500
Dec 31	Depreciation expense—Land improvements 2	8,200
Accumulated depreciation—Land improvements 2	8,200

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10.4A.

Champion Contractors completed the following transactions and events involving the purchase and operation of equipment in its business.

*2014*
Jan.	1	Paid $287,600 cash plus $11,500 in sales tax and $1,500 in transportation (FOB shipping point) for a new loader. The loader is estimated to have a four-year life and a $20,600 salvage value. Loader costs are recorded in the Equipment account.
Jan.	3	Paid $4,800 to enclose the cab and install air-conditioning in the loader to enable operations under harsher conditions. This increased the estimated salvage value of the loader by another $1,400.
Dec.	31	Recorded annual straight-line depreciation on the loader.

*2015*
Jan.	1	Paid $5,400 to overhaul the loader’s engine, which increased the loader’s estimated useful life by two years.
Feb.	17	Paid $820 to repair the loader after the operator backed it into a tree.
Dec.	31	Recorded annual straight-line depreciation on the loader.

Required:

Prepare journal entries to record these transactions and events.

Date	General Journal	Debit	Credit
Jan 01, 2014	Equipment	300,600
Cash	300,600
Jan 03, 2014	Equipment	4,800
Cash	4,800
Dec 31, 2014	Depreciation expense—Equipment	70,850
Accumulated depreciation—Equipment	70,850
Jan 01, 2015	Equipment	5,400
Cash	5,400
Feb 17, 2015	Repairs expense—Equipment	820
Cash	820
Dec 31, 2015	Depreciation expense—Equipment	43,590
Accumulated depreciation—Equipment	43,590

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Question 10-6A
[The following information applies to the questions displayed below.]

Onslow Co. purchases a used machine for $178,000 cash on January 2 and readies it for use the next day at an $2,840 cost. On January 3, it is installed on a required operating platform costing $1,160, and it is further readied for operations. The company predicts the machine will be used for six years and have a $14,000 salvage value. Depreciation is to be charged on a straight-line basis. On December 31, at the end of its fifth year in operations, it is disposed of.

14.

Required:
1.	Prepare journal entries to record the machine’s purchase and the costs to ready and install it. Cash is paid for all costs incurred.

Date	General Journal	Debit	Credit
Jan 02	Machinery	178,000
Cash	178,000
Jan 03	Machinery	2,840
Cash	2,840
Jan 03	Machinery	1,160
Cash	1,160

15.

2.	Prepare journal entries to record depreciation of the machine at December 31.

(a)	Its first year in operations.

Date	General Journal	Debit	Credit
Dec 31	Depreciation expense—Machinery	28,000
Accumulated depreciation—Machinery	28,000

(b)	The year of its disposal.

Date	General Journal	Debit	Credit
Dec 31	Depreciation expense—Machinery	28,000
Accumulated depreciation—Machinery	28,000

16.

3.	Prepare journal entries to record the machine’s disposal under each of the following separate assumptions:

(a)	It is sold for $15,000 cash.

Date	General Journal	Debit	Credit
Dec 31	Cash	15,000
Loss on sale of machinery	27,000
Accumulated depreciation—Machinery	140,000
Machinery	182,000

(b)	It is sold for $50,000 cash.

Date	General Journal	Debit	Credit
Dec 31	Cash	50,000
Accumulated depreciation—Machinery	140,000
Machinery	182,000
Gain on sale of machinery	8,000

(c)	It is destroyed in a fire and the insurance company pays $30,000 cash to settle the loss claim.

Date	General Journal	Debit	Credit
Dec 31	Cash	30,000
Accumulated depreciation—Machinery	140,000
Loss from fire	12,000
Machinery	182,000

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10.2A.

A machine costing $257,500 with a four-year life and an estimated $20,000 salvage value is installed in Luther Company’s factory on January 1. The factory manager estimates the machine will produce 475,000 units of product during its life. It actually produces the following units: 220,000 in 1st year, 124,600 in 2nd year, 121,800 in 3rd year, 15,200 in 4th year. The total number of units produced by the end of year 4 exceeds the original estimate—this difference was not predicted. (The machine must not be depreciated below its estimated salvage value.)

Required:

Compute depreciation for each year (and total depreciation of all years combined) for the machine under each depreciation method. (Round your per unit depreciation to 2 decimal places.)

Straight-Line Depreciation
Year	Depreciation Expense
1	$59,375
2	59,375
3	59,375
4	59,375
Total	$237,500

Units of Production
Year	Depreciable Units	Depreciation per unit	Depreciation Expense
1	220,000	$0.50	$110,000
2	124,600	$0.50	62,300
3	121,800	$0.50	60,900
4	8,600	$0.50	4,300
Total	475,000	$237,500

DDB Depreciation for the Period				End of Period
Year	Beginning of Period Book Value	Depreciation Rate		Depreciation Expense	Accumulated Depreciation	Book Value
1	$257,500	50	%	$128,750	$128,750	$128,750
2	128,750	50	%	64,375	193,125	64,375
3	64,375	50	%	32,188	225,313	32,187
4	32,187	50	%	12,187	237,500	20,000
Total	$237,500

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18.

Diaz Company owns a milling machine that cost $250,000 and has accumulated depreciation of $182,000. Prepare the entry to record the disposal of the milling machine on January 3 under each of the following independent situations.

1.	The machine needed extensive repairs, and it was not worth repairing. Diaz disposed of the machine, receiving nothing in return.
2.	Diaz sold the machine for $35,000 cash.
3.	Diaz sold the machine for $68,000 cash.
4.	Diaz sold the machine for $80,000 cash.

Date	General Journal	Debit	Credit
Jan 03	Loss on disposal of milling machine	68,000
Accumulated depreciation—Milling machine	182,000
Milling machine	250,000
Jan 03	Cash	35,000
Loss on disposal of milling machine	33,000
Accumulated depreciation—Milling machine	182,000
Milling machine	250,000
Jan 03	Cash	68,000
Accumulated depreciation—Milling machine	182,000
Milling machine	250,000
Jan 03	Cash	80,000
Accumulated depreciation—Milling machine	182,000
Gain on sale of milling machine	12,000
Milling machine	250,000

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10.5A.

Yoshi Company completed the following transactions and events involving its delivery trucks.

*2014*
Jan.	1	Paid $20,515 cash plus $1,485 in sales tax for a new delivery truck estimated to have a five-year life and a $2,000 salvage value. Delivery truck costs are recorded in the Trucks account.
Dec.	31	Recorded annual straight-line depreciation on the truck.

*2015*
Dec.	31	Due to new information obtained earlier in the year, the truck’s estimated useful life was changed from five to four years, and the estimated salvage value was increased to $2,400. Recorded annual straight-line depreciation on the truck.

*2016*
Dec.	31	Recorded annual straight-line depreciation on the truck.
Dec.	31	Sold the truck for $5,300 cash.

Required:

Calculate depreciation for year 2015.

Total cost	$22,000
Less accumulated depreciation (from 2014)	4,000
Book value	18,000
Less revised salvage value	2,400
Remaining cost to be depreciated	15,600
Years of life remaining	3
Total depreciation for 2015	$5,200

Calculate book value and gain (loss) for sale of Truck on December, 2016.

Depreciation expense (for 2014)	$4,000
Depreciation expense (for 2015)	5,200
Depreciation expense (for 2016)	5,200
Accumulated depreciation 12/31/2016	14,400
Book value of truck at 12/31/2016
Total cost	$22,000
Accumulated depreciation	(14,400)
Book value 12/31/2016	$7,600
Loss on sale of truck	$2,300

Prepare journal entries to record these transactions and events.

Date	General Journal	Debit	Credit
Jan 01, 2014	Trucks	22,000
Cash	22,000
Dec 31, 2014	Depreciation expense—Trucks	4,000
Accumulated depreciation—Trucks	4,000
Dec 31, 2015	Depreciation expense—Trucks	5,200
Accumulated depreciation—Trucks	5,200
Dec 31, 2016	Depreciation expense—Trucks	5,200
Accumulated depreciation—Trucks	5,200
Dec 31, 2016	Cash	5,300
Accumulated depreciation—Trucks	14,400
Loss on disposal of trucks	2,300
Trucks	22,000