New lithographic equipment acquired at a cost of

Chapter Review
10-8dDiscussion Questions
1. O'Neil Office Supplies has a fleet of automobiles and trucks for use by salespersons and for delivery of office supplies and equipment. Collins Auto Sales Co. has automobiles and trucks for sale. Under what caption would the automobiles and trucks be reported in the balance sheet of (a) O'Neil Office Supplies and (b) Collins Auto Sales Co.?

2. Bullwinkle Co. acquired an adjacent vacant lot with the hope of selling it in the future at a gain. The lot is not intended to be used in Bullwinkle business operations. Where should such real estate be listed on the balance sheet?

3. Alpine Company solicited bids from several contractors to construct an addition to its office building. The lowest bid received was for $1,200,000. Alpine decided to construct the addition itself at a cost of $1,100,000. What amount should be recorded in the building account?

4. Keyser Company purchased a machine that has a manufacturer's suggested life of 20 years. The company plans to use the machine on a special project that will last 12 years. At the completion of the project, the machine will be sold. Over how many years should the machine be depreciated?

5. Is it necessary for a business to use the same method of computing depreciation for all classes of its depreciable assets?

6.

1. Under what conditions is the use of the straight-line depreciation method most appropriate?

2. Under what conditions is the use of the units-of-activity depreciation method most appropriate?

3. Under what conditions is the use of the double-declining-balance depreciation method most appropriate?

7. Distinguish between the accounting for capital expenditures and revenue expenditures.

8. Immediately after a used truck is acquired, a new motor is installed at a total cost of $3,850. Is this a capital expenditure or a revenue expenditure?

9. For some of the fixed assets of a business, the balance in Accumulated Depreciation is equal to the cost of the asset. (a) Is it permissible to record additional depreciation on the assets if they are still useful to the business? Explain. (b) When should an entry be made to remove the cost and the accumulated depreciation from the accounts?

10.

1. Over what period of time should the cost of a patent acquired by purchase be amortized?

2. In general, what is the required accounting treatment for research and development costs?

3. How shoul

10-8ePractice Exercises
PE 10-1A

Straight-line depreciation
1. Obj. 2

Example Exercise 10-1

A building acquired at the beginning of the year at a cost of $1,450,000 has an estimated residual value of $300,000 and an estimated useful life of 10 years. Determine (a) the depreciable cost, (b) the straight-line rate, and (c) the annual straight-line depreciation.

PE 10-1B

Straight-line depreciation
1. Obj. 2

Example Exercise 10-1

Equipment acquired at the beginning of the year at a cost of $340,000 has an estimated residual value of $45,000 and an estimated useful life of 10 years. Determine (a) the depreciable cost, (b) the straight-line rate, and (c) the annual straight-line depreciation.

PE 10-2A

Units-of-activity depreciation
1. Obj. 2

Example Exercise 10-2

A truck acquired at a cost of $69,000 has an estimated residual value of $12,000, has an estimated useful life of 300,000 miles, and was driven 77,000 miles during the year. Determine (a) the depreciable cost, (b) the depreciation rate, and (c) the units-of-activity depreciation for the year.

PE 10-2B

Units-of-activity depreciation
1. Obj. 2

Example Exercise 10-2

A tractor acquired at a cost of $420,000 has an estimated residual value of $30,000, has an estimated useful life of 25,000 hours, and was operated 1,850 hours during the year. Determine (a) the depreciable cost, (b) the depreciation rate, and (c) the units-of-activity depreciation for the year.

PE 10-3A

Double-declining-balance depreciation
1. Obj. 2

Example Exercise 10-3

A building acquired at the beginning of the year at a cost of $1,375,000 has an estimated residual value of $250,000 and an estimated useful life of 40 years. Determine (a) the double-declining-balance rate and (b) the double-declining-balance depreciation for the first year.

PE 10-3B

Double-declining-balance depreciation
1. Obj. 2

Example Exercise 10-3

Equipment acquired at the beginning of the year at a cost of $175,000 has an estimated residual value of $12,000 and an estimated useful life of 10 years. Determine (a) the double-declining-balance rate and (b) the double-declining-balance depreciation for the first year.

PE 10-4A

Revision of depreciation
1. Obj. 2

Example Exercise 10-4

Equipment with a cost of $180,000 has an estimated residual value of $14,400, has an estimated useful life of 16 years, and is depreciated by the straight-line method. (a) Determine the amount of the annual depreciation. (b) Determine the book value at the end of the tenth year of use. (c) Assuming that at the start of the eleventh year the remaining life is estimated to be eight years and the residual value is estimated to be $10,500, determine the depreciation expense for each of the remaining eight years.

PE 10-4B

Revision of depreciation
1. Obj. 2

Example Exercise 10-4

A truck with a cost of $82,000 has an estimated residual value of $16,000, has an estimated useful life of 12 years, and is depreciated by the straight-line method. (a) Determine the amount of the annual depreciation. (b) Determine the book value at the end of the seventh year of use. (c) Assuming that at the start of the eighth year the remaining life is estimated to be six years and the residual value is estimated to be $12,000, determine the depreciation expense for each of the remaining six years.