Plant, Property and Equipment (Depreciation of Non-Current Assets)

1. On January 2, 2011, the Crossover Band acquires sound equipment for concert performances at a
cost of $55,900. The band estimates it will use this equipment for four years, during which time it
anticipates performing about 120 concerts. It estimates that after four years it can sell the equipment
for $1,900. During year 2011, the band performs 40 concerts.
a. Compute the year 2011 depreciation using the straight line method.
b. Compute the year 2011 depreciation using the units-of-production method.
2. A fleet of refrigerated delivery trucks is acquired on January 5, 2011, at a cost of $930,000 with an
estimated useful life of eight years and an estimated salvage value of $150,000. Compute the
depreciation expense for the first three years using the double-declining-balance method.
3. Classify the following as either revenue or capital expenditures.
a. Completed an addition to an office building for $250,000 cash.
b. Paid $160 for the monthly cost of replacement filters on an air-conditioning system.
c. Paid $300 cash per truck for the cost of their annual tune-ups.
d. Paid $50,000 cash to replace a compressor on a refrigeration system that extends its useful
life by four years.
4. In early January 2011, LabTech purchases computer equipment for $147,000 to use in operating
activities for the next four years. It estimates the equipment’s salvage value at $30,000.
a. Prepare a table showing depreciation and book value for each of the four years assuming
straight-line depreciation.
b. Prepare a table showing depreciation and book value for each of the four years assuming
double-declining-balance depreciation.
5. Feng Company installs a computerized manufacturing machine in its factory at the beginning of the
year at a cost of $42,300. The machine’s useful life is estimated at 10 years, or 363,000 units of
product, with a $6,000 salvage value. During its second year, the machine produces 35,000 units of
product.
a. Determine the machine’s second-year depreciation under the straight-line method.
b. Determine the machine’s second-year depreciation using the units-of-production method.
c. Determine the machine’s second-year depreciation using the double-declining-balance
method.
6. On April 1, 2010, Stone’s Backhoe Co. purchases a trencher for $250,000. The machine is expected
to last five years and have a salvage value of $25,000.
a. Compute depreciation expense for both 2010 and 2011 assuming the company uses the
straight-line method.
b. Compute depreciation expense for both 2010 and 2011 assuming the company uses the
double-declining-balance method.
7. Clarion Contractors completed the following transactions and events involving the purchase and
operation of equipment in its business.
2010
Jan. 1 Paid $255,440 cash plus $15,200 in sales tax and $2,500 in transportation (FOB shipping
point) for a new loader. The loader is estimated to have a four-year life and a $34,740 salvage
value. Loader costs are recorded in the Equipment account.
Jan. 3 Paid $3,660 to enclose the cab and install air conditioning in the loader to enable operations
under harsher conditions. This increased the estimated salvage value of the loader by another
$1,110.
Dec. 31 Recorded annual straight-line depreciation on the loader.
8. Chen Company completed the following transactions and events involving its delivery trucks.
2010
Jan. 1 Paid $19,415 cash plus $1,165 in sales tax for a new delivery truck estimated to have a five-
year life and a $3,000 salvage value. Delivery truck costs are recorded in the Trucks account.
Dec. 31 Recorded annual straight-line depreciation on the truck.
 2011
Dec. 31 Due to new information obtained earlier in the year, the truck’s estimated useful life was
changed from five to four years, and the estimated salvage value was increased to $3,500.
Recorded annual straight-line depreciation on the truck.
2012
Dec. 31 Recorded annual straight-line depreciation on the truck.
Dec. 31 Sold the truck for $6,200 cash.
Required
Prepare journal entries to record these transactions and events
9. A machine costing $210,000 with a four-year life and an estimated $20,000 salvage value is installed
in Calhoon Company’s factory on January 1. The factory manager estimates the machine will
produce 475,000 units of product during its life. It actually produces the following units: year 1,
121,400; year 2, 122,400; year 3, 119,600; and year 4, 118,200. The total number of units produced
by the end of year 4 exceeds the original estimate — this difference was not predicted. (The machine
must not be depreciated below its estimated salvage value.)
Required
Prepare a table with the following column headings and compute depreciation for each year (and total
depreciation of all years combined) for the machine under each depreciation method.

10. Saturn Co. purchases a used machine for $167,000 cash on January 2 and readies it for use the next
day at an $3,420 cost. On January 3, it is installed on a required operating platform costing $1,080,
and it is further readied for operations. The company predicts the machine will be used for six years
and have a $14,600 salvage value. Depreciation is to be charged on a straight-line basis. On
December 31, at the end of its fifth year in operations, it is disposed of.
Required
1. Prepare journal entries to record the machine’s purchase and the costs to ready and install it. Cash is
paid for all costs incurred.
2. Prepare journal entries to record depreciation of the machine at December 31 of (a) its first year in
operations and (b) the year of its disposal.
3. Prepare journal entries to record the machine’s disposal under each of the following separate
assumptions: (a) it is sold for $13,500 cash; (b) it is sold for $45,000 cash
11. Millworks Company owns a milling machine that cost $125,000 and has accumulated depreciation of
$91,000. Prepare the entry to record the disposal of the milling machine on January 5 under each of
the following independent situations.
a. The machine needed extensive repairs, and it was not worth repairing. Millworks disposed of the
machine, receiving nothing in return.
b. Millworks sold the machine for $17,500 cash.
c. Millworks sold the machine for $34,000 cash.
d. Millworks sold the machine for $40,000 cash.

12. Bob & Robin, Inc., purchased a new machine on October 1, 2001, at a cost of $144,000. The
machine’s estimated useful life at the time of the purchase was 6 years, and its residual value was
$12,000.
Instructions
a. Prepare a complete depreciation schedule, beginning with calendar year 2001, under each of the
methods listed below (assume that the half-year convention is used):
i. Straight-line.
ii. 200% declining-balance.
iii. 150% declining-balance (not switching to straight-line).
b. Which of the three methods computed in part a is most common for financial reporting purposes?
Explain.
 c. Assume that Bob & Robin sell the machine on December 31, 2004, for $40,000 cash. Compute the
resulting gain or loss from this sale under each of the depreciation methods used in part a. Does the
gain or loss reported in the company’s income statement have any direct cash effects? Explain.

13. Sal’s Salon purchased new furniture for its store on April 1, 2001. The furniture is expected to have
a 10-year life and no residual value. The following expenditures were associated with the purchase:

Cost of the furniture ....................................................................................... $10,000

Freight charges ............................................................................................... 350
Sales taxes ...................................................................................................... 600
Installation of furniture .................................................................................. 50
Cost to repair furniture damaged during installation ..................................... 500

Instructions
a. Compute depreciation expense for the years 2001 through 2004 under each depreciation method
listed below:
1. Straight-line, with fractional years rounded to the nearest whole month.
2. 200% declining-balance, using the half-year convention.
3. 150% declining-balance, using the half-year convention.