EXERCISE 10-1 (a) Under the cost principle, the acquisition cost for a plant asset

includes all expenditures necessary to acquire the asset and make it ready for its intended use. For example, the cost of factory machinery includes the purchase price, freight costs paid by the purchaser, insurance costs during transit, and installation costs.

(b) 1. Land 2. Equipment 3. Equipment 4. Land Improvements 5. Equipment 6. Equipment 7. Prepaid Insurance 8. License Expense

EXERCISE 10-2 1. Equipment 2. Equipment 3. Equipment 4. Land 5. Prepaid Insurance 6. Land Improvements 7. Land Improvements 8. Land 9. Buildings

EXERCISE 10-3 (a) Cost of land Cash paid .......................................................................... $80,000 Net cost of removing warehouse ($8,600 – $1,700) ........................................................... 6,900 Attorney’s fee .................................................................... 1,100 Real estate broker’s fee ................................................... 5,000 Total ........................................................................... $93,000

(b) The architect’s fee ($7,800) should be debited to the Buildings account. The cost of the driveways and parking lot ($14,000) should be debited to Land Improvements.

EXERCISE 10-5 (a) Depreciation cost per unit is $1.60 per mile [($168,000 – $8,000) ÷ 100,000].

(b) Computation End of Year

Year

Units of Activity

X

Depreciation

Cost /Unit

=

Annual Depreciation

Expense

Accumulated Depreciation

Book Value

2012

2013 2014 2015

26,000 32,000 25,000 17,000

$1.60 1.60 1.60 1.60

$41,600 51,200 40,000 27,200

$ 41,600 92,800 132,800 160,000

$126,400 75,200 35,200 8,000

EXERCISE 10-6 (a) Straight-line method:

$120,000 – $12,000

5

= $21,600 per year.

2012 depreciation = $21,600 X 3/12 = $5,400.

(b) Units-of-activity method:

$120,000 – $12,000

10,000

= $10.80 per hour.

2012 depreciation = 1,700 hours X $10.80 = $18,360.

(c) Declining-balance method: 2012 depreciation = $120,000 X 40% X 3/12 = $12,000. Book value January 1, 2013 = $120,000 – $12,000 = $108,000. 2013 depreciation = $108,000 X 40% = $43,200. EXERCISE 10-7 (a) (1) 2012: ($30,000 – $2,000)/8 = $3,500 2013: ($30,000 – $2,000)/8 = $3,500 (2) ($30,000 – $2,000)/100,000 = $0.28 per mile 2012: 15,000 X $0.28 = $4,200 2013: 12,000 X $0.28 = $3,360 (3) 2012: $30,000 X 25% = $7,500 2013: ($30,000 – $7,500) X 25% = $5,625 (b) (1) Depreciation Expense ............................................ 3,500 Accumulated Depreciation—Equipment .............. 3,500 (2) Equipment ............................................................... $30,000 Less: Accumulated Depreciation—Equipment .... 3,500

$26,500

EXERCISE 10-8 (a) Type of Asset Building Warehouse Book value, 1/1/12

Less: Salvage value Depreciable cost Remaining useful life in years Revised annual depreciation

$686,000 37,000 $649,000

44

$ 14,750

$81,000 3,600 $77,400

15

$ 5,160

(b) Dec. 31 Depreciation Expense ............................. 14,750 Accumulated Depreciation— Buildings ....................................... 14,750 EXERCISE 10-10 (a) Cash ......................................................................... 28,000 Accumulated Depreciation—Equipment [($50,000 – $5,000) X 3/5] .................................... 27,000 Equipment ....................................................... 50,000 Gain on Disposal of Plant Assets .................. 5,000 (b) Depreciation Expense [($50,000 – $5,000) X 1/5 X 4/12] ......................... 3,000 Accumulated Depreciation—Equipment ...... 3,000

Cash ......................................................................... 28,000 Accumulated Depreciation—Equipment ($27,000 + $3,000) ................................................ 30,000 Equipment ...................................................... 50,000 Gain on Disposal of Plant Assets ................. 8,000 (c) Cash ........................................................................... 11,000 Accumulated Depreciation—Equipment ................. 27,000 Loss on Disposal of Plant Assets ............................ 12,000 Equipment .......................................................... 50,000

(d) Depreciation Expense [($50,000 – $5,000) ÷ 5 X 9/12] ............................... 6,750 Accumulated Depreciation—Equipment .......... 6,750 Cash ........................................................................... 11,000 Accumulated Depreciation—Equipment ($27,000 + $6,750) .................................................. 33,750 Loss on Disposal of Plant Assets ............................ 5,250 Equipment .......................................................... 50,000 EXERCISE 10-11 (a) Dec. 31 Depletion Expense ................................... 90,000 Accumulated Depletion (100,000 X $.90) ............................ 90,000 Cost (a) $720,000 Units estimated (b) 800,000 tons Depletion cost per unit [(a) ÷ (b)] $0.90

(b) The costs pertaining to the unsold units are reported in current assets as part of inventory (20,000 X $.90 = $18,000).

EXERCISE 10-12 Dec. 31 Amortization Expense .................................. 12,000 Patents ($90,000 ÷ 5 X 8/12) ................. 12,000 Note: No entry is made to amortize goodwill because it has an

indefinite life.