Partial year depreciation double declining balance

Question 1:

Pawtucket Furniture purchased land, paying $85,000 cash plus a $340,000 note payable. In addition,

Pawtucket paid delinquent property tax of $4,000, title insurance costing $4,500, title insurance costing

$4,500, and $7,000 to level the land and remove an unwanted building. The company then constructed an

office building at a cost of $650,000. It also paid $49,000 for a fence around the property, $14,000 for a

sign near the entrance, and $6,000 for special lighting of the grounds.

Requirement 1. Determine the cost of the land, land improvements, and building.

The cost of the land is $_____________

The total cost of the land improvements is $_______________

The cost of the building is $______________

Requirement 2. Which of these assets will Pawtucket depreciate?

___________________

Question 2:

Drive and Fly near an airport, incurred the following cost to acquire land, make land improvements, and

construct and finish a small building

Drive and Fly depreciates land improvements over 25 years, building over 50 years, and furniture over 12

years, all on a straight-line basis with zero residual value.

Requirements

1. Show how to account for each cost by listing the cost under the correct account. Determine the

total cost of each asset.

2. All construction was complete and the assets were placed in service on October 1. Record

partial-year ended December 31.

Data Table

Requirement 2. All construction was complete and the assets were placed in service on October 1.

Record partial-year depreciation for the year depreciation for the year ended December 31. (Record a

single compound journal entry. Round all depreciation expense amounts to the nearest whole dollar.

Record debits first, then credits. Select the explanation on the last line of the journal entry table.)

Question 3:

Wonder Fried Chicken bought equipment on January 2, 2016, for $33,000. The equipment was expected

to remain in service for four years and to perform 5,400 fry jobs. At the end of the equipment’s useful

life, Wonder estimates that its residual value will be $6,000. The equipment performed 540 jobs the first

year, 1620 the second year, 2,160 the third year, and 1,080 the fourth year.

Requirement 1.

Prepare a schedule of depreciation expense, accumulated depreciation, and book value per year for the

equipment under the three depreciation methods. Show your computations. Note: Three depreciation

schedules must be prepared.

Question 4:

Discount Hardware Consultants purchases a building for $904,000 and depreciated it on a straight-line

basis over a 40- year period. The estimated residual value is $104,000. After using the building for 15

years, Discount realized that wear and tear on the building would wear it out before 40 year

Question 5:

On January 2, 2016, Nimble Delivery Service purchased a truck at a cost of $100,000. Before placing the

truck in service, Nimble spent $2,200 painting it, $1,800 replacing tires, and $10,000 overhauling the

engine. The truck should remain in service for five years and have a residual value of $12,000. The

truck’s annual mileage is expected to be 32,000 miles in each of the first four years and 8,000 miles in the

fifth year-136,000 miles in total. In deciding which depreciation method to use, Jordan Lipnik, the

general manager, request a depreciation schedule for each of the depreciation methods (straight-line,

units-of-production, and double-declining-balance).

Requirement1. Prepare a depreciation schedule for each depreciation method, showing asset cost,

depreciation expense, accumulated depreciation, and asset book value.

Before completing the units-of production depreciation schedule, calculate the depreciation expense per

unit. (Round depreciation expense per unit to two decimal places.)

Prepare a depreciation schedule using the units-of –production method. (Enter the depreciation per unit to

two decimal places, $X.XX.)

Prepare a depreciation schedule using the double-declining-balance (DDB) method. (Round depreciation

expense to the nearest whole dollar.)

Requirement 2.

Nimble prepares financial statements using the depreciation method that reports the highest net income in

the early years of asset use. Consider the first year that Nimble uses the truck. Identify the depreciation

method that meets the company’s objectives.

The depreciation method that reports the highest net income in the first year is the

____________________ method. It produces the _____________ depreciation expense and therefore the

highest net income.

Question 6: On January 2, 2015, Repeat Clothing Consignments purchased showroom fixtures for

$15,000 cash, expecting the fixtures to remain in service for five years. Repeat has depreciated the

fixtures on a double-declining-basis, with zero residual value. On August

Question 7: Granny Varney Associates surveys American eating habits. The company’s accounts include

Land, Buildings, Office Equipment, and Communication Equipment, with a separate Accumulated

Depreciation account for each asset. During 2016, Granny Carney completed the following transactions.

Jan 1: Purchased office equipment, $116,000. Paid $81,000 cash and financed the remaining with a note

payable (Record a single compound journal entry)

Apr 1: Acquired land and communication equipment in a lump-sum purchase. Total cost was $390,000

paid in cash. An independent appraisal valued the land at $ 307,125 and the communication equipment at

$102,375. (Record a single compound journal entry.)

Sep. 1: Sold a building that cost $580,000 (accumulated depreciation of $280,000 through December 31of

the preceding year). Carney received $330,000 cash from the sale of the building. Depreciation is

computed on a straight-line basis. The building has a 40-year useful life and a residual value of $40,000.

Question 8:

Donahue Oil Company has an account titled Oil and Gas Properties. Donahue paid $700,000 holding an

estimated 500,000 barrels of oil. Assume the company paid $560,000 for additional geological tests of the

property and $490,000 to prepare for drilling. During the first year, Donahue removed and sold 70,000

barrels of oil. Record all of the Donahue’s transactions, including depletion for the first year. (Record

debits first, then credits.

Question 9:

Medway Printers (MP) manufactures printers. Assume that MP recently paid $900,000 for patent on a

new laser printer. Although it gives legal protection for 20 years, the patent is expected to provide a

competitive advantage for only eight years.

Requirements

1. Assuming the straight-line method of amortitzation, make journal entries to record (a) the patent and

(b) amortization for the first full year.

2. After using the patent for four years, MP learns at an industry trade show that another company is

designing a more efficient printer. On the basis of this new information, MP decides, starting with year 5,

to amortize the remaining cost of the patent over two remaining years, giving the patent a totatl useful life

of six years, Record amortiztion for year 5.

Requirement 2. After using the patent for four years, MP learns at an industry trade show that another

company is designing a more efficient printer. On the basis of this new information, MP decides, starting

with year 5, to amortize the remaining cost of the patent over two remaining years, giving the patent a

totatl useful life of six years, Record amortiztion for year 5. (record debits first, then credit. Selte the

explanation on the last line of the journal entry table.

Question 10:

Question 11:

Requirement 2: All construction was complete and the assets were placed in service on October 1.

Record partial-year depreciation for the year ened December 31. (record a single compound journal entry.

Round all depreciation expense amounts to the nearest whole dollar. Record debits first, then credits.

Select the explanation on the last line of the journal entry table

Question 12:

Requirement 2: What special asset does Middles’s acquisition of Shipley Wireless identify ? How

should Middle Telecom account for this asset after acquiring Shipley Wireless? Explain in detail.

What special asset does Middle’s acquisiton of Shipley Wireless identify ?

The acquisition identifies the asset ____________________________.

How should Middle Telecom account for this asset after acquiring Shipley Wireless? Explain in detail.

Middle should measure the ____________________ of this asset each year. If this asset has increased in

value, Middle should _________________________. If the value of the asset has decreased, Middle

should __________________________________.

Question 13:

Requirement 2. All construction was complete and the assets were placed in service on May 1. Record

partial-year depreciation for the year ended Decemeber 31. (Record a single compound journal entry.

Round all depreciation expense amounts to the nearest whole dollar. Record debits first, then credits.

Select the explanation on the last line of the jounal entry table.)

Question 14: On January 3, 2016, Nimble Delivery Service purchased a truck at a cost of $62,000.

Before placing the truck in service, Nimble soebt $4,000 painting it, $1,500 replacing tiresm and $2,500

overhauling the engine. The truck should remain in service for five years and have a residual value of

$5,000. The truck’s annual mileage is expected to be 28,000 miles in each of the first four years and

18,000 miles in the fifth year- 130,000 miles in total. In deciding which depreciation method to use, Alec

Rivera, the general manager, request a depreciation schedule for each of the depreciation methods

(straight-line, units-of-production, and double-declining-balance).

Requirement 2: Nimble prepares a financial statements using the depreciation method that reports the

highest net income in the early years of asset use. Consider the first year that Nimble uses the truck.

Identify the depreciation method that meets the company’s objectives.

The depreciation method that reports the highest net income in the first year is the ___________________

method. It produces the _____________________ depreciation expens and therefore the highest net

income.

Question 15:

Guilda Bell Associations surveys American eating habits. The company’s accounts include Land,

Buildings, Office Equipment, and Communication Equipment, with a separate Acculated Depreciation

account for each asset. During 2016, Guilda Bell completed the following transactions:

Apr 1: Acquired lande and communication equipment in a lump-sum purchase. Total cost was $440,000

paid in cash. An independent appraisal valued the land at $346,500 and the communication equipment at

$115,500. (record a single compound journal entry.)

Sept 1: Sold a building that cost $555,000 (accumulated depreciation of $255,000 through December 31

of the preceding year). Bell received $410,000 cash from the sale of the building. Depreciation is

computed on a straight-line basis.The building has a 40-year useful life and a residula value of 75,000.