.
What costs are added to property, plant and equipment
assets -- equipment? What expenditures would not be
added? See list below:
Purchase of equipment
Invoice price
Discount taken
Shipping charges
Installation charges
Repairs made, due to accident with equipment
Property tax, prepaid for one year
Insurance paid
Training costs
8
What is added to the land account, from the list
below. What expenditures would not be added?
Invoice price
Cost of grading
Cost of constructing a building
Title search costs
Real estate commissions
Back property taxes paid at purchase
Current year property tax prepaid
Cost of tearing down old building never intended for
use by the company
Cost of tearing down a building first used by the
company
8
Added to
equipment
Invoice price
Less:discounts
taken
Shipping
charges added
Installation
charges added
Expensed
Other
Repairs
Asset--Prepaid
property tax
insurance
Training costs
Added to land
Invoice price
Cost of grading
8
Expensed
Other
Constructing
building-add
to building
Title search costs
Real estate com
Pack property taxes
Current
property taxes
Cost - tearing down
bldg never used
Cost - tearing
down bldg
used
8
Record the following in general journal form.
XYZ acquires a group of assets in a single tranaction
as a basket purchase for $6,000.. If the assets were
purchased separately, the purchase price would have
been: Computer -- $4000, Scanner --$3000, computer
desk --$1000,
Computer
Scanner
Computer desk
Cash
computer 4000/8000 * 6000 =
Scanner
3000/8000 * 6000=
Computer 1000/8000 * 6000=
desk
Total
3000
2250
750
6000
3000
2250
750
6000
8
8
1
What is depreciation? What concept(s) support
depreciating certain assets? What are the three
methods?
Calculate/journalize the 1st year’s depreciation, using
the 3 methods. The car has a useful life of 6 years or
100,000 miles, a cost of $26000, and estimated
salvage value of $2000. Mileage 1st year – 25,000.
8
Record the following in general journal form.
XZY has a piece of equipment with a cost of $60,000
and accumulated depreciation to date of $20,000. This
is the start of the 3rd year of a 6 year useful life. A
major overhaul costing $10,000 is completed at the
beginning of the 2nd year. No salvage is estimated.
Record the overhaul
Depreciate
Depreciation is the expensing of the historical cost
less any salvage over the useful life of an asset
(property, plant & equipment). There are at least 3
depreciation methods– straight-line (STL), double
declining balance (DDB) & units of output. Depreciation is done to “match” expenses incurred to the
revenue generated..
. Depreciation expense
4000
Accumulated Deprec.
4000
(26000-2000 )/6 years STL
Depreciation expense
8667
Accumulated Deprec
8667
(26000 – 0) * 2/6 DDB
Depreciation expense
6000
Accumulated Deprec
6000
(26000-2000 )/100000=.24 per mile,.24 * 25,000 8
.
Equipment
Cash
60000
Depreciation exp
Accumulated dep
12500
60000
12500
(60000-20000)+10000 amount to be depreciated/4
year remaining useful life
8
8
Record the following in general journal form.
XZY has a piece of equipment with a cost of $50,000
and accumulated depreciation to date of $10,000. This
is the start of the 2nd year of a 5 year useful life. A
major overhaul costing $10,000 is completed at the
beginning of the 2nd year. A $5000 salvage is
estimated. The overhaul causes the useful life to
change from a total of 5 years to 10 years.
Depreciation exp
5000
Accumulated dep
5000
Record the expenditure extending the useful life
Record entry to depreciation
Accumulated Deprec.
Cash
10,000
10,000
Record the expenditure extending the useful life
Depreciation exp
5000
Accumulated dep
5000
((50000-10000)+10000 -5000)/10-1
8
8
2
What kind of account is accumulated depreciation?
When is it recorded? Why is it used?
Accumulated depreciation is a contra asset in the longterm asset section, reported on the balance sheet. It is
updated in adjusting entries (property, plant and
equipment assets used up). A separate account
balance is shown for all depreciation taken to date.
This is considered important information to the
statement reader. By showing the main account, less
contra account equals bookvalue, a statement reader
can tell if the asset is old or new. This information is
not necessary for more short-term prepaids.
8
8
Write the depreciation formula for straight-line
depreciation.
(cost-salvage)/useful life
8
8
Write the formula for double declining balance
depreciation.
(Cost – accumulated depreciaton) times 2/useful life
8
8
3
What is the formula for the units of output method?
(Cost-salvage)/estimated mileage (or hours, or units
produced) = rate
Rate times actual usage = depreciation
8
8
Journalize the following in general journal form:
Painted the walls of the building and replaced the old
windows $20,000.
Repairs expense
Cash
20000
20000
8
8
Compare and contrast, straight-line depreciation,
double declining balance and units of output
depreciation.
Straight-line is the easiest method to understand and
apply, and most companies do use it. It gives the same
amount of depreciation every year, unless the first or
last year is a partial year. There are some assets,
however, that probably don’t deteriorate in that
pattern.
Double declining balance is mathematically an
unsound method, but creates the most depreciation in
the first year, and less and less. It is more complicated
to calculate and understand.
8
Units of output is a good method for assets that are
used inconsistently from period to period. 8
4