KING ABDULAZIZ UNIVERSITY

FACULTY of ECONOMICS & ADMINISTRATION

ACCOUNTING DEPARTMENT

FIRST SEMESTER (2020)

ACCT 213

Course Exercise (Chapter 10 )

Instructor:
E-Mail:
Phone:
Office: -
Office Hours: -

Student’s Name Mohammed Khamis

Student’s Number 1945667

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 EXERCISES (1)

1. Hala Clinic purchases land for $175,000 cash. The clinic assumes $1,500 in property taxes due on
the land. The title and attorney fees totaled $1,000. The clinic has the land graded for $2,200. What
amount does Hala Clinic record as the cost for the land?

a. $157,200 b. $175,000 c. $179,700 d. $157,500

2. Hull Company acquires land for $86,000 cash. Additional costs are as follows:

Removal of shed $ 300

Filling and grading 1,500

Salvage value of lumber of shed 120

Broker commission 1,130

Paving of parking lot 10,000

Closing costs 560

Hull will record the acquisition cost of the land as

a. $96,000. b. $87,690. c. $89,610. d. $89,370.

Price + remove of shed + filling and grading – salvage + commission + closing

3. West Hospital installs a new parking lot. The paving cost $40,000 and the lights to illuminate the
new parking area cost $25,000. Which of the following statements is true with respect to these
additions?

a. $40,000 only should be debited to the Land account.

b. $25,000 only should be debited to Land Improvements.
c. $65,000 only should be debited to the Land account.
d. $65,000 only should be debited to Land Improvements.

4. Land improvements should be depreciated over the useful life of the

a. land. b. buildings on the land.

c. land or land improvements, whichever is longer. d. land improvements.

5. Costs incurred to increase the operating efficiency or useful life of a plant asset are referred to as

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 a. capital expenditures. b. expense expenditures.
c. ordinary repairs. d. revenue
expenditures.

6. Expenditures that maintain the operating efficiency and expected productive life of a plant asset
are generally

a. expensed when incurred. b. capitalized as a part of the cost of the asset.

c. debited to the Accumulated Depreciation account.
d. not recorded until they become material in amount.

7. On May 1, 2017, Pink Company sells office furniture for $300,000 cash. The office furniture
originally cost $750,000 when purchased on January 1, 2010. Depreciation is recorded by the
straight-line method over 10 years with a salvage value of $75,000. What gain should be
recognized on the sale?

a. $22,500. b. $45,000. c. $47,500. d. $90,000.

8. Mather Company purchased equipment on January 1, 2016 at a total invoice cost of $336,000;
additional costs of $6,000 for freight and $30,000 for installation were incurred. The equipment
has an estimated salvage value of $12,000 and an estimated useful life of five years. The amount
of accumulated depreciation at December 31, 2017 if the straight-line method of depreciation is
used is: 1/5

a. $129,600. b. $132,000. c. $144,000. d. $148,800.

9. Kingston Company purchased a piece of equipment on January 1, 2016. The equipment cost
$200,000 and had an estimated life of 8 years and a salvage value of $25,000. What was the
depreciation expense for the asset for 2017 under the double-declining-balance (DDB) method?

a. $21,667. b. $37,500. c. $50,000. d.$39,063.

2016

200,000 * 0.25 = 50,000

2017

200,000 – 50,000 = 150,000 * 0.25 = 37, 500

Rate = 2/8 = 0.25

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EXERCISES (2)

Silicon Valley Company purchased a new machine for $400,000. It is estimated that the
machine will have a $40,000 salvage value at the end of its 5-year useful service life. The
double-declining-balance method of depreciation will be used.

Instructions

Prepare a depreciation schedule which shows the annual depreciation expense on the
machine for its 5-year life.

Solution:
Year Book Value Depreciation Annual Accumulated Book Value
Beginning of Depreciation Depreciation End of Year
Year Rate Expense
End of Year

1 400,000 % 40 160,000 160,000 240,000

2 240,000 % 40 96,000 256,000 144,000

3 144,000 % 40 57,600 313,600 86,400

4 86,400 % 40 34,560 348,160 51,840

5 51,840 % 40 11,840 360,000 40,000

After Adjusting:

Step 1: 51,840 – 40,000 = 11,840 and that should be our annual depreciation EXP

Step 2: 348,160 + 11,840 = 360,000

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 EXERCISES (3)

The White Dental Clinic purchased a new dental laser tool for $90,000. The estimated
salvage value is $5,000. The laser tool has a useful life of five years and the clinic expects to
use it 10,000 hours. It was used over its useful life as follow:

 1,600 hours in year 1

 2,200 hours in year 2
 2,400 hours in year 3
 1,800 hours in year 4
 2,000 hours in year 5.
Instructions

(a) Compute the annual depreciation for each of the five years under each of the following
methods: (1) straight-line. (2) units-of-activity.

Solution: 1) Straight-line method

Year Depreciable Depreciation Annual Accumulated Book Value
Cost Depreciation Depreciation End of Year
Rate Expense End of Year

1 85,000 % 20 17,000 17,000 73,000

2 85,000 % 20 17,000 34,000 56,000

3 85,000 % 20 17,000 51,000 39,000

4 85,000 % 20 17,000 68,000 22,000

5 85,000 % 20 17,000 85,000 5000

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 (2): Units-of-activity method

Year Units-of-activity Depreciation Annual Accumulated Book Value

Depreciation Depreciation End of Year
Each Year Rate Expense End of Year

1 1600 8.5 13,600 13,600 76,400

2 2200 8.5 18,700 32,300 57,700

3 2400 8.5 20,400 52,700 37,300

4 1800 8.5 15,300 68,000 22,000

5 2000 8.5 17,000 85,000 5000

Rate = (90,000 – 5000) / 10,000 = 8.5

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