1.-Nonmonetary exchange. A machine cost $240,000, has annual depreciation expense of $48,000, and has accumulated depreciation of $120,000 on December 31, 2014. On April 1, 2015, when the machine has a fair value of $96,000, it is exchanged for a similar machine with a fair value of $288,000 and the proper amount of cash is paid. The exchange lacked commercial substance.
Instructions Prepare all entries that are necessary at April 1, 2015.
2.-Capitalizing vs. Expensing. Consider each of the items below. Place the proper letter in the blank space provided to indicate the nature of the account or accounts to be debited when recording each transaction using the preferred accounting treatment. Prepayments should be recorded in balance sheet accounts. Disregard income tax considerations unless instructed otherwise.
a. asset(s) only b. accumulated amortization, depletion, or depreciation only c. expense only d. asset(s) and expense e. some other account or combination of accounts
1. A motor in one of North Company's trucks was overhauled at a cost of $600. It is expected that this will extend the life of the truck for two years.
2. Machinery which had originally cost $130,000 was rearranged at a cost of $450, including installation, in order to improve production.
3. Orlando Company recently purchased land and two buildings for a total cost of $35,000, and entered the purchase on the books. The $1,200 cost of razing the smaller building, which has an appraisal value of $6,200, is recorded.
4. Jantzen Company traded its old machine with a net book value of $3,000 plus cash of $7,000 for a new one which had a fair market value of $9,000.
5. Jim Parra and Mary Lawson, maintenance repair workers, spent five days in unloading and setting up a new $6,000 precision machine in the plant. The wages earned in this five-day period, $480, are recorded.
6. On June 1, the Milton Hotel installed a sprinkler system throughout the uilding at a cost of $13,000. As a result the insurance rate was decreased by 40%.
7. An improvement, which extended the life but not the usefulness of the asset, cost $6,000.
8. The attic of the administration building was finished at a cost of $3,000 to provide an additional office.
9. In March, the Lyon Theatre bought projection equipment on the installment basis. The contract price was $23,610, payable $5,610 down, and $2,250 a month for the next eight months. The cash price for this equipment was $22,530.
10. Lambert Company recorded the first year's interest on 6% $100,000 ten-year bonds sold a year ago at 94. The bonds were sold in order to finance the construction of a hydroelectric plant. Six months after the sale of the bonds, the construction of the hydroelectric plant was completed and operations were begun. (Only cash interest, and not discount amortization, is to be considered.)
3.-Capitalization of interest.
During 2014, Barden Building Company constructed various assets at a total cost of $12,600,000. The weighted average accumulated expenditures on assets qualifying for capitalization of interest during 2014 were $8,400,000. The company had the following debt outstanding at December 31, 2014:
1. 10%, 5-year note to finance construction of various assets, dated January 1, 2014, with interest payable annually on January 1 $5,400,000
2. 12%, ten-year bonds issued at par on December 31, 2008, with interest payable annually on December 31 6,000,000
3. 9%, 3-year note payable, dated January 1, 2013, with interest payable annually on January 1 3,000,000
Instructions
Compute the amounts of each of the following (show computations).
1. Avoidable interest.
2. Total interest to be capitalized during 2014.
4.-Calculate depreciation.
A machine cost $800,000 on April 1, 2014. Its estimated salvage value is $80,000 and its expected life is eight years.
Instructions (1) Calculate the depreciation expense (to the nearest dollar) by each of the following methods, showing the figures used. (a) Straight-line for 2014 (b) Double-declining balance for 2015 (c) Sum-of-the-years'-digits for 2015
(2) Which method would result in the smallest income amount for 2015?
5.-Asset depreciation and disposition. Answer each of the following questions.
1. A plant asset purchased for $400,000 has an estimated life of 10 years and a residual value of $20,000. Depreciation for the second year of use, determined by the declining-balance method at twice the straight-line rate is $
2. A plant asset purchased for $330,000 at the beginning of the year has an estimated life of 5 years and a residual value of $30,000. Depreciation for the third year, determined by the sum-of-the-years'-digits method is $
3. A plant asset with a cost of $320,000 and accumulated depreciation of $90,000, is given together with cash of $120,000 in exchange for a similar asset worth $330,000. The gain or loss recognized on the disposal (indicate by "G" or "L") is
4. A plant asset with a cost of $270,000, estimated life of 5 years, and residual value of $45,000, is depreciated by the straight-line method. This asset is sold for $190,000 at the end of the second year of use. The gain or loss on the disposal (indicate by "G" or "L") is $
6.-Depletion allowance. Mareos Company purchased for $3,800,000 a mine estimated to contain 2 million tons of ore. When the ore is completely extracted, it was expected that the land would be worth $200,000. A building and equipment costing $1,800,000 were constructed on the mine site, and they will be completely used up and have no salvage value when the ore is exhausted. During the first year, 750,000 tons of ore were mined, and $300,000 was spent for labor and other operating costs.
Instructions Compute the total cost per ton of ore mined in the first year. (Show computations by setting up a schedule giving cost per ton.)