Plant Assets, Natural
Resources, and
Intangibles
Chapter 9
Exercises
Lump-Sum Purchases

In-Class Exercise:
Exercise No.
E9-18
Page
513
Lump-Sum Purchases
Lump-Sum Purchases
Exercise E9-17
Dearwood Properties bought three lots in a subdivision for a
lump-sum price. An independent appraiser valued the lots as
follows:
Lot
1
2
3
Appraised Value
$ 45,000
292,500
112,500
Requirements:
(1) Dearwood paid $435,000 in cash.
(2) Record the purchase in the general journal.
(3) Identify each lot’s cost in a separate Land account.
(4) Round decimals to two places, and use the computed
percentages throughout.
Lump-Sum Purchases
Lump-Sum Purchases
Lump-Sum Purchases
End of Exercise
Depreciation Methods

In-Class Exercise (Form groups and work exercises) :
Exercise No.
E9-20
Page
513 Straight-Line,
Units-of-Production, &
Double-Declining Balance
Depreciation Methods

Crackling Fried Chicken bought equipment on January 2, 2016,
for $21,000.

The equipment was expected to remain in service for four
years and to perform 3,600 fry jobs.

At the end of the equipment’s useful life, Crackling’s estimates
that its residual value will be $3,000.

The equipment performed 360 jobs the first year, 1,080 the
second year, 1,440 the third, and 720 the fourth year.
Requirements:
(1) Prepare a schedule of depreciation expense, accumulated
depreciation, and book value per year for the equipment
under the three depreciation methods.
(2) Show your computations. Note: Three depreciation
schedules must be prepared.
Depreciation Methods
Straight-Line Method
Straight-Line Depreciation
Residual Value
Depreciation Methods
Units-of-Production Method
Units-of-Production
Residual Value
Depreciation Methods
Double-Declining Method
Double-Declining Balance
100% / Useful Life x 2 = Rate of Depreciation
100% / 4 years = 25% x 2 = 50%
50%
50%
The DDB rate cannot be used for the third year because it
would decrease the book value below the residual value.
(Depreciation = $5,250 - $3,000 = $2,250)
Double-Declining Balance
100% / Useful Life x 2 = Rate of Depreciation
100% / 4 years = 25% x 2 = 50%
50%
50%
50%
Depreciation Methods
End of Exercise
Sale of Plant Assets

In-Class Exercise:
Exercise No.
E9-23
Page
514
Sale of Asset
(Use the format, as reflected on the next chart, to
complete this exercise)
Sale of Plant Assets
General Journal
Date
Description
Exercise
E9-23
Debit
Page
592
Sale of Assets
Credit
Sale of Plant Assets
 On January 2, 2014, Pet Salon purchased fixtures for $48,200 cash,
expecting the fixtures to remain in service for nine years.
 Pet Salon has depreciated the fixtures on a straight-line basis, with a
$5,000 residual value.
 On May 31, 2016, Pet Salon sold the fixtures for $30,000 cash.
Requirements:
(1) Record depreciation expense for 2016.
(2) Record the sale of the fixtures on May 31, 2016.
Sale of Plant Assets
Partial year depreciation
Or…………….$4,800 x 5/12 = $2,000
Sale of Plant Assets
Partial year depreciation
Depreciation Recap
Depreciation for year 2014 ……….…. $4,800
Depreciation for year 2015 ………….. 4,800
Partial year depreciation for 2016 …. 2,000
Accumulated depreciation…………$11,600
Sale of Plant Assets
Partial Year = $4,800 x 5/12 = $2,000
Sale of Plant Assets
Loss Calculation
Fixture acquisition cost ……….……. $48,200
Less: Accumulated depreciation …. (11,600)
Book value…………………..………… $36,600
Less: Cash received…………………. (30,600)
Loss on sale of fixtures……………… $ 6,000
Sale of Plant Assets
End of Exercise
Natural Resources

In-Class Exercise:
Exercise No.
E9-24
Page
514
Depletion Entries
Natural Resources

Colorado Mountain Mining paid $507,700 for the right to extract
mineral assets from a 500,000-ton deposit.

In addition, to the purchase price, Colorado also paid a $600
filing fee, a $1,700 license fee to the state of Nevada, and
$90,000 for a geological survey of the property.

Because Colorado purchased the rights to the minerals only, it
expects the asset to have zero residual value.

During the first year, Colorado removed and sold 60,000 tons of
the minerals.
Requirements: Make journal entries to record:
(a) purchase of the minerals (debit Minerals),
(b) payment of fees and other costs, and
(c) depletion of the first year.
Natural Resources
Cost of Mineral Deposit Acquisition
Natural Resources
Depletion Computations
Natural Resources
Journal Entries
Natural Resources
End of Exercise
Intangibles

In-Class Exercise (Form groups and work exercise):
Exercise No.
E9-25
Page
514
Amortization Entries
(Use the format, as reflected on the next chart, to
complete this exercise)
Intangibles
General Journal
Date
Description
Exercise
E9-25
Debit
Page
514
Amortization Entries
Credit
Amortization of Intangibles

Medway Printers (MP) manufactures printers. Assume that MP
recently paid $900,000 for a patent on a new laser printer.

Although it gives legal protection for 20 years, the patent is
expected to provide a competitive advantage for only 8 years.
Requirements:
(1) Assuming the straight-line method of amortization, make the
journal entries to record:
(a) the purchase of the patent, and
(b) amortization for the first full year.
(2) After using the patent for 4 years, MP learns that another
company is designing a more efficient printer.
(a) On the basis of this news, MP decides, starting with
year 5, to amortize the remaining cost of the printer
over 2 remaining years.
(b) This gives the patent a useful life of 6 years.
(c) Compute amortization for year 5.
Amortization of Intangibles
a.
b.
$900,000 ÷ 8 years = $112,500
Amortization of Intangibles
Amortization of Intangibles
End of Exercise
Exchange of Assets

In-Class Exercise:
Exercise No.
E9-28
Page
515
Exchange of Assets
(Use the format, as reflected on the next chart, to
complete this exercise)
Exchange of Assets
General Journal
Date
Description
Exercise
E9-28
Debit
Page
515
Exchange of Assets
Credit
Exchange of Assets
Commerce Bank disposes of old office fixtures costing $99,000, with
accumulated depreciation of $65,000.
Prepare the entries to record the disposal under each of the following
separate assumptions.
(1) The office fixtures are traded in for new office fixtures having
a $142,000 market value. A $34,000 trade-in allowance is received,
and the balance is paid in cash ($108,000). Assume the asset
exchange has commercial substance.
(2) The office fixtures are traded in for new office fixtures having
a $135,000 market value. A $27,000 trade-in allowance is received,
and the balance is paid in cash ($108,000). Assume the asset
exchange has commercial substance.
Exchange of Assets
Book Value + Cash Paid = Cost of New Fixtures
$ 34,000 + $108,000 = $142,000
Exchange of Assets
Exchange of Assets
Exchange of Assets
End of Exercise