CHAPTER 10

# CHAPTER 10 - CHAPTER10 PlantAssets,NaturalResources...

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CHAPTER 10 Plant Assets, Natural Resources, and Intangible Assets SOLUTIONS TO BRIEF EXERCISES BRIEF EXERCISE 10-1 All of the expenditures should be included in the cost of the land. Therefore, the cost of the land is \$61,000, or (\$50,000 + \$3,000 + \$2,500 + \$2,000 + \$3,500). BRIEF EXERCISE 10-2 The cost of the truck is \$26,900 (cash price \$25,000 + sales tax \$1,500 + painting and lettering \$400). The expenditures for insurance and motor vehicle license should not be added to the cost of the truck. BRIEF EXERCISE 10-3 Depreciable cost of \$34,000, or (\$40,000 – \$6,000). With a four- year useful life, annual depreciation is \$8,500, or (\$34,000 ÷ 4). Under the straight-line method, depreciation is the same each year. Thus, depreciation is \$8,500 for both the first and second years. BRIEF EXERCISE 10-4 It is likely that management requested this accounting treatment to boost reported net income. Land is not depreciated; thus, by reporting land at \$80,000 above its actual value the company increased yearly income by \$4,000, or 20years \$80,000 the reduction

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in depreciation expense. This practice is not ethical because management is knowingly misstating asset values. BRIEF EXERCISE 10-5 The declining balance rate is 50%, or (25% X 2) and this rate is applied to book value at the beginning of the year. The computations are: Book Value X Rate = Depreciation Year 1 Year 2 \$40,000 (\$40,000 – \$20,000) 50% 50% \$20,000 \$10,000
BRIEF EXERCISE 10-6 The depreciation cost per unit is 20 cents per mile computed as follows: Depreciable cost (\$30,500 – \$500) ÷ \$150,000 = \$.20 30,000 miles Year 1 X \$.20 = \$6,000 20,000 miles Year 2 X \$.20 = \$4,000 BRIEF EXERCISE 10-7 Book value, 1/1/05. ............................................................................. ................................................................................................ \$23,000 Less: Salvage value. ......................................................................... 2,000 Depreciable cost. ............................................................................... ................................................................................................ \$21,000 Remaining useful life. ........................................................................ ............................................................................................................. ................................................................................................. 4 years Revised annual depreciation (\$21,000 ÷ 4). .................................... ................................................................................................ 5,250 \$ BRIEF EXERCISE 10-8 (a) Accumulated Depreciation—Delivery Equipment ................................................................ 41,000 Delivery Equipment. ............................................ 41,000

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## This note was uploaded on 04/04/2009 for the course ACC 321 taught by Professor Ahmedmokhtar during the Spring '09 term at Ain Shams University.

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CHAPTER 10 - CHAPTER10 PlantAssets,NaturalResources...

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