Question 1. On January 1, 2014 Behrend acquired a parcel of real estate that included land and a building for a negotiated price of $19,870,000. Before purchasing the property, Behrend paid $30,000 for an appraisal. Behrend also incurred closing costs of $100,000. The appraisal estimated fair value of the land at $19,800,000 and the building at $2,200,000.
Required: Assuming Behrend occupies the building, record the real estate acquisition using the accounting equation format.
Question 2. On January 1, 2013, Behrend Corp. purchased a weaving machine for $1,800,000. Cost to ship the machine and set it up totaled $100,000. The machine is expected to have a useful life of 5 years and a $400,000 salvage value. The machine is expected to produce 1,500,000 units over its lifetime. During 2013, 320,000 units were produced. During 2014, 400,000 units were produced.
Required: Calculate what depreciation expense would be for years 2013 and 2014 under each of the following depreciation methods:
1) Straight-line
2) Double Declining Balance
3) Units of Output
4) Sum of the year's digits
Question 3. Refer to the previous exercise part a) where Behrend applies straight-line depreciation. Assume that in 2015 Behrend revised its estimate of the weaving machine's total service life from 5 years to 4 years and also revised its estimate of residual value from $400,000 to only $300,000.
Required: Determine the amount of depreciation recognized in each year 2015 and 2016 given the changes in estimate.
Question 4. Refer again to the weaving machine depreciated by Behrend under the straight-line method. Assume that Behrend exchanges the machine on 1/1/2015 for a new machine. The new machine has a fair value of $2,000,000 and in addition to its old machine Behrend pays $500,000 in cash.
Required: Assuming that the exchange has "commercial substance" record the exchange using the accounting equation format applying "fair value treatment."