Problem 10-1A

1. Lump-sum purchase
Asset Estimated % of value Purchase Apportioned
market value price cost

Building 514,250 55% 900,000 495,000

Land 271,150 29% 900,000 261,000
Land improve 65,450 7% 900,000 63,000
4 vehicles 84,150 9% 900,000 81,000
Total 935,000 100% 900,000

Journal entries
1-Jan Building
Land
Land improvement
4 vehicles
Cash

2. Depreciation of building for year 2009 - using straight-line method

Cost 495,000
Useful life - years 15
Salvage value 30,000

Depreciation expense for year 2009 31,000

3. Depreciation of land improvements for year 2009 - using double-declining-balance depreciation

Cost 63,000
Useful life - years 5

1. Straight-line rate 20%

2. Double-declining-balance rate 40%
3. Depreciation expense 25,200

4. Analysis
Accelerated depreciation does not lower the total amount of taxes paid over the asset's life. Instead, it defers or
postpones taxes to the later years of an asset’s useful life

Problem 10-3A
Prepare journal entries
2008
1-Jan Equipment - loader
Cash

3-Jan Equipment - loader

 Cash

31-Dec Depreciation expense - Equipment

Accumulated depreciation - Equipment

Note:
Cost
Useful life (year)
Salvage value

2009
1-Jan Equipment - loader
Cash

17-Feb Repair expense

Cash

31-Dec Depreciation expense - Equipment

Accumulated depreciation - Equipment

Note:
Net book value of the equipment
Remaining useful life (year) at the date of change
Salvage value

Problem 10-5A
Machine was bought on Jan 1
Cost
Salvage value
Total depreciation cost*
(*Total depreciation cost is the same using 3 approaches)

Useful life
Estimated production
Actual production
Year 1 - actual
Year 2 - actual
Year 3 - actual
Year 4 - actual
(Year 4: actual units produced exceeded the original estimate)

Year 4 - estimation

a. Straight-line depreciation method

Depreciation expense each year:
b. Unit-of-production depreciation method
1. Depreciation per unit
2. Depreciation expense
Year 1
Year 2
Year 3
Year 4*
(*Year 4: use estimated production instead of actual production to reduce book value to the asset’s
$33,000 salvage value)

c. Double-declining-balance depreciation method

1. Straight-line rate
2. Double-declining-balance rate

Beginning Depreciation Depreciation Accumulated

Year BV rate expense depreciation
Year 1 320,000 50% 160,000 160,000
Year 2 160,000 50% 80,000 240,000
Year 3 80,000 50% 40,000 280,000
Year 4* 40,000 50% 7,000 287,000
(*Book value could not fall below salvage value/asset could not be depreciated below its salvage value)

Summary depreciation expense using 3 approaches

Year Straight-line UoP DDB

Year 1 71,750 71,400 160,000
Year 2 71,750 72,240 80,000
Year 3 71,750 71,960 40,000
Year 4 71,750 71,400 7,000
Total 287,000 287,000 287,000

Problem 10-6A
1. Prepare journal entries to record purchase of assets
2-Jan Machine
Cash

2. Prepare journal entries to record depreciation expense at Dec 31

Summary:
Cost
Useful life (year)
Salvage value
31-Dec Depreciation expense - Machine
Accumulated depreciation - Machine
*The depreciation expense using straight-line method is the same over the useful life of the asset

3. Prepare journal entries for asset disposal in the 5th year

Assumption (a)
At Dec 31 Book value in year 5
Sold for cash
Accumulated depreciation as at the end of 5th year

31-Dec Cash
Loss on disposal of assets
Accumulated depreciation - Machine
Machine

Assumption (b)
At Dec 31 Book value in year 5
Sold for cash
Accumulated depreciation as at the date of disposal

31-Dec Cash
Accumulated depreciation - Machine
Machine
Gain on disposal of assets

Assumption (c)
At Dec 31 Book value in year 5
Cash from fire insurance company
Accumulated depreciation as at the date of disposal

Cash
Loss from fire
Accumulated depreciation - Machine
Machine

Problem 10-7A
23-Jul Land
Tons of recoverable ore
25-Jul Installed machinery
Useful life (year)
Salvage value
Sell ore (tons in the first 5 months
Depreciation of machinery: in proportion to the mine's depletion
a. Purchase of land
23-Jul Land
Cash

b. Cost and installation of machinery

25-Jul Machinery
Cash

c. The first 5 months' depletion

1. Depletion per unit
2. Depletion expense

31-Dec Depletion expense - Ore deposit

Accumulated depletion - Ore deposit

d. The first 5 months' depreciation on machinery

Proportion to the mine's depletion

31-Dec Depreciation expense - Machinery

Accumulated depreciation - Machinery
 495,000
261,000
63,000
81,000
900,000

ng-balance depreciation

asset's life. Instead, it defers or

306,900
306,900

5,100
 5,100

68,750
68,750

312,000
4
37,000

4,500
4,500

1,125
1,125

42,150
42,150

247,750
5
37,000

320,000
33,000
287,000

4
512,500
512,900
127,500
129,000
128,500
127,900

127,500

71,750
 56.00%

71,400
72,240
71,960
71,400
ook value to the asset’s

25%
50%

Book value
160,000
80,000
40,000
33,000
elow its salvage value)

213,160
213,160

213,160
6
16,960
 32,700
32,700
he useful life of the asset

49,660
21,000
163,500

21,000
28,660
163,500
213,160

49,660
73,500
163,500

73,500
163,500
213,160
23,840

49,660
31,500
163,500

31,500
18,160
163,500
213,160

4,612,500
5,125,000
512,500
10
-
490,000
4,612,500
4,612,500

512,500
512,500

0.90
441,000

441,000
441,000

10%

49,000
49,000