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Chapter 9: 8RQ (page 488)
Which depreciation method ignores residual value until the last year of depreciation? Why?
The method of depreciation which ignores residual value is the double-declining method.
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Question: What is a lump-sum purchase, and how is it accounted for?
During 2018, Lora Company completed the following transactions:
Jan. 1 Traded in old office equipment with book value of \(55,000 (cost of\)129,000 and accumulated depreciation of \(74,000) for new equipment.Lora also paid \)55,000 in cash. Fair value of new equipment is \(116,000.Assume the exchange had commercial substance.
Apr. 1 Sold equipment that cost \)12,000 (accumulated depreciation of \(1,000through December 31 of the preceding year). Lora received \)7,100 cashfrom the sale of the equipment. Depreciation is computed on a straightlinebasis. The equipment has a five-year useful life and a residual valueof \(0.
Dec. 31 Recorded depreciation as follows:
Office equipment is depreciated using the double-declining-balancemethod over four years with a \)7,000 residual value.
Record the transactions in the journal of Lora Company.
Question: P9-36B Determining asset cost and recording partial-year depreciation
Safe Parking, near an airport, incurred the following costs to acquire land, make land improvements, and construct and furnish a small building:
a | Purchase price of three acres of land | $86,000 |
b | Delinquent real estate taxes on the land to be paid by safe parking | 6,300 |
c | Additional dirt and earth removing | 8,400 |
d | Title insurance and the land acquisition | 3,400 |
e | Fence around the boundary of the property | 9,600 |
f | Building permit for building | 900 |
g | Architect’s fee for design of building | 20,100 |
h | Signs near the front of property | 9,000 |
i | Material used to construct the building | 217,000 |
J | Labor to construct the building | 172,000 |
k | Interest cost on construction loan for the building | 9,500 |
l | Parking lots on the property | 29,400 |
m | Lights for parking lots | 11,600 |
n | Salary of construction supervisor(80% to building; 20% to parking lot and concrete walks) | 80,000 |
o | Furniture | 11,700 |
p | Transportation of furniture from seller to the building | 1,900 |
q | Additional fencing | 6,900 |
Safe Parking depreciates land improvements over 15 years, buildings over 40 years, and furniture over 10 years, all on a straight-line basis with zero residual value.
Requirements
1. Set up columns for Land, Land Improvements, Building, and Furniture. Show how to account for each cost by listing the cost under the correct account. Determine the total cost of each asset.
2. All construction was complete and the assets were placed in service on September 1. Record partial-year depreciation expense for the year ended December 31. Round to the nearest dollar.
What financial statements are property, plant, and equipment reported on, and how?
Recording partial-year depreciation and sale of an asset On January 2, 2017, Comfy Clothing Consignments purchased showroom fixtures for \(17,000 cash, expecting the fixtures to remain in service for five years. Comfy has depreciated the fixtures on a double-declining-balance basis, with zero residual value. On October 31, 2018, Comfy sold the fixtures for \)7,600 cash. Record both depreciation expense for 2018 and sale of the fixtures on October 31, 2018.
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