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
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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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