Chapter 8: Reporting and Interpreting
Property, Plant, and Equipment;
Intangibles; and Natural Resources
Extra Questions
Question 1
Sebastian Incorporated purchased a new truck on January 1 for $22,500 plus $2,500 in sales tax.
The company paid $5,000 cash on the truck (including the sales tax), signing a 10 percent note for
the $20,000 balance due in nine months (on September 30). On January 2, the company paid cash
of $500 to have the company name and logo painted on the truck. On September 30, the company
paid the balance due on the truck plus the interest. On December 31 (the end of the accounting
period), Sebastian recorded depreciation on the truck using the straight-line method with an
estimated useful life of 5 years and an estimated residual value of $5,000.
Required (round all amounts to the nearest dollar):
1. Indicate the effects (accounts, amounts, and + or −) of each transaction (on January 1, 2, and
September 30) on the accounting equation.
2. Compute the acquisition cost of the truck.
3. Compute the depreciation expense to be reported for Year 1.
4. What impact does the interest paid on the 10 percent note have on the cost of the truck?
Under what circumstances can interest expense be included in acquisition cost?
5. What would be the net book value of the truck at the end of Year 2?
Question 2
At the beginning of the year, Siegel Brothers, Inc., purchased a machine at a cost of $100,000. The
estimated residual value was $10,000. Assume that the estimated useful life was four years, and the
estimated productive life of the machine was 5,000 units. Actual annual production was as follows:
Year Units
1 1,300
2 1,100
3 1,200
4 1,400
Required:
Complete a separate depreciation schedule for each of the alternative methods. Round
your answers to the nearest dollar.
a.Straight-line.
b.Units-of-production.
c.Double-declining-balance.
Question 3
Dixieland Delivery Corporation is a rising company in the express-distribution industry. The company
has approximately 131 aircraft and 10,200 vehicles and trailers that pick up and deliver packages.
Assume that Dixieland sold a delivery truck that had been used in the business for three years. The
records of the company reflected the following:
Delivery truck cost $47,500
Accumulated depreciation 28,750
Required:
1. Give the journal entry for the disposal of the truck, assuming that the truck sold for
a. $18,750 cash
b. $19,500 cash
c. $18,250 cash
2. Based on the three preceding situations, explain the effects of the disposal of an asset.
Question 4
Bowman Company operates a small manufacturing facility as a supplement to its regular service activities. At the beginning of Year X, an asset
account for the company showed the following balances:
Manufacturing equipment $75,000
Accumulated depreciation through Year X-1 40,500
During Year X, the following expenditures were incurred for the equipment:
Major overhaul of the equipment on January 2, Year X that improved efficiency $9,000
Routine maintenance and repairs on the equipment 750
The equipment is being depreciated on a straight-line basis over an estimated life of 15 years with a $7,500 estimated residual value. The
annual accounting period ends on December 31.
Required:
1. Give the adjusting entry that should be made by Bowman Company at the end of Year X for depreciation of the manufacturing equipment,
assuming no change in the original estimated life or residual value. Show computations. Round answer to the nearest dollar.
2. Give the adjusting entry that was made at the end of Year X-1 for depreciation on the manufacturing equipment.
3. Starting at the beginning of Year X, what is the remaining estimated life?
4. Give the journal entries to record the two expenditures during Year X.
Question 5
Chicago Growers, Inc., owns equipment for sowing and harvesting its organic fruit, vegetables,
and tree nuts that are sold to local restaurants and grocery stores. At the beginning of Year X, an
asset account for the company showed the following balances:
Equipment $600,000
Accumulated depreciation through Year X-1 230,000
During Year X, the following expenditures were incurred for the equipment:
Routine maintenance and repairs on the equipment $10,000
Major overhaul of the equipment that improved efficiency on January 1, Year X 50,000
The equipment is being depreciated on a straight-line basis over an estimated life of 5 years with a
$25,000 estimated residual value. The annual accounting period ends on December 31.
Required:
1.Give the adjusting entry that was made at the end of Year X-1 for depreciation on the equipment.
2.Starting at the beginning of Year X, what is the remaining estimated life?
3.Give the journal entries to record the two expenditures during Year X.
Question 6
Renaissance Incorporated is a worldwide operator and franchiser of hotels and has over $750
million in property and equipment. Assume that Renaissance replaced furniture that had been
used in the business for five years. The records of the company reflected the following regarding
the sale of the existing furniture:
Furniture (cost) $3,000,000
Accumulated depreciation 2,750,000
Required:
1. Give the journal entry for the disposal of the furniture, assuming that it was sold for
a. $250,000 cash
b. $800,000 cash
c. $200,000 cash
2. Based on the three preceding situations, explain the effects of the disposal of an asset.
Question 7
Golden Inc., headquartered in Phoenix, Arizona, is a leading international mining company of copper,
gold, and molybdenum. Its revenues were over $20 billion with net income of nearly $4 billion in a
recent year.
Assume that in February Year 1, Golden paid $1,000,000 for a mineral deposit in Indonesia. During
March, it spent $90,000 in preparing the deposit for exploitation. It was estimated that 1,000,000 total
cubic yards could be extracted economically. During Year 1, 80,000 cubic yards were extracted. During
January Year 2, the company spent another $10,000 for additional developmental work that increased
the estimated productive capacity of the mineral deposit.
Required:
1. Compute the acquisition cost of the deposit in year 1.
2. Compute depletion for year 1.
3. Compute the net book value of the deposit after payment of the January Year 2 developmental
costs.
Question 8
Billingsworth Company had three intangible assets at the end of Year 2 (end of the accounting year):
a. Computer software and Web development technology purchased on January 1, Year 1, for $63,000. The
technology is expected to have a four-year useful life to the company with no residual value.
b. A patent purchased from Terry Taylor on January 1, Year 2, for a cash cost of $5,400. Taylor had
registered the patent with the U.S. Patent Office five years ago. Billingsworth intends to use the patent
for its remaining life.
c. A trademark purchased for $13,000 on November 1, Year 2. Management decided the trademark has
an indefinite life.
Required:
1. Compute the amortization of each intangible at December 31, Year 2. The company does not use contra-
accounts.
2. Show how these assets and any related expenses should be reported on the balance sheet and income
statement for Year 2.
