ACCT 3312 FALL 2007 CHAPTER 11 EXAMPLES PAGE 11-1
Example 1. On October 1, 2002, Porter Company purchased equipment for $100,000. It had an estimated useful life of 9
years and a salvage value of $10,000.
REQUIRED: Compute depreciation for 2002, 2003, and 2004 under each of the following methods:
a. Straight line.
b. Sum of the years digits.
c. Double declining balance.
d. 150% declining balance.
Example 2. Lucia Company uses a group depreciation system. On Jan. 1, 2001, it acquired the following assets:
Asset Cost Residual Estimated life-
A $10,000 $2,000 4
B 15,000 3,000 5
C 20,000 4,000 6
1. Compute the composite life of the assets.
2. Compute the depreciation rate.
3. Suppose the company sold asset B on 8-1-2003 for $11,000. Prepare the journal entry to record the sale.
Example 3. On Jan. 1, 2001, Nickel Company purchased equipment for $150,000. At that time, the equipment had an
estimated life of 10 years with no salvage value. Nickel used straight line depreciation on the equipment.
During 2004, it was determined that the estimated life was only 7 years from the acquisition date.
1. Prepare the journal entry to record depreciation for 2001, 2002, and 2003.
2. Prepare the entry that would be made in 2004 to correct prior years' depreciation.
3. Prepare the entry to record depreciation for 2004.
Example 4. On Jan.1, 2001, Muscoda Mining Corporation purchased a tract of mineral land for $800,000. The company
estimated the tract will yield 50,000 tons of mineral ore. During the first six months of 2001, the company spent $80,000 in
preparing the property for mining. In addition, a building was constructed for $200,000. The building had an estimated life of
20 years. However, it will be torn down at the end of the life of the mine since it is not feasible to move it.
Mining equipment was purchased for $100,000. This equipment has an estimated life of 10 years with no salvage value. It
will be moved to another mine when this mine closes.
At the end of production, state and federal laws require the land to be reconditioned. The company estimates this will cost